The goal is to allow factories and businesses to catch up so shoppers are no longer competing for a limited stock of goods and services, creating shortages that enable companies to raise prices without scaring voracious buyers away.
Inflation F.A.Q.
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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
“What we hope to achieve is bringing the economy to a level where supply and demand are in sync,” Mr. Powell said.
Asked whether the nation might be on the cusp of a wage-price spiral, in which wages and inflation feed on each other, Mr. Powell struck a cautious tone.
“That is a serious concern, and one that we monitor carefully,” he said. He noted that wage increases had been very quick — especially for lower-paid workers — and that whether they became problematic would depend on how persistent they proved to be.
“The big thing we don’t want is to have inflation become entrenched and self-perpetuating,” he said. “That’s why we’re moving ahead with our program to raise interest rates and get inflation under control.”
Mr. Powell underlined that the Fed’s plans for policy would be “nimble” in response to uncertainty coming from Ukraine. Economists have said the conflict is likely to push up gas and other commodity prices, further elevating inflation — already, oil prices have shot higher. But at the same time, a combination of higher fuel costs and wavering consumer sentiment could be a drag on economic growth.
But Mr. Powell made clear, repeatedly, that getting price gains back in line was key.
“We need to deliver price stability; we’re not currently doing that,” he later added, calling the central bank “very highly motivated to get the economy back to a place where we have inflation under control, but also a strong economy and a strong labor market.”
Article source: https://www.nytimes.com/2022/03/03/business/economy/federal-reserve-powell-inflation.html
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