Another 2011 prediction – Inflation

By | February 7, 2011

Ok, before I go into this post, I want to make sure we all understand something: I do not have anything to do with the economy or interest rates or the like.

I’m an equipment financing guy, so in terms of the big picture, nobody listens to me. And unlike Alan Greenspan in the late 90’s, the size of my briefcase is meaningless in terms of the economy. Truthfully, the size of my briefcase generally depends on what Mrs. Fletch packed for lunch, and little more.

All that said, I usually do have a pretty good handle on the economy (it’s part of being an equipment finance guy, after all). So I feel pretty comfortable about making the following prediction: Inflation is coming. A little bit, anyway.

We’ve had a loooong run of very little inflation, and we’ve had low interest rates for years and years. But it’s becoming pretty evident that it cannot be sustained, and inflationary pressure will begin to gain steam.  Here’s why:

  • The recent rise in commodity prices, especially oil and food prices, will quickly flow through our economy. It’s inevitable.
  • The trillions of dollars piling onto the federal deficit, and the associated interest cost, will cause an incremental increase in what it costs for the federal government to borrow. This will result in an increase in state & local cost of debt, and will ultimately cost businesses and individuals higher rates to borrow.

Now while I see the above as almost a given in 2011, it is not a cause for alarm. I definitely think it will be a controlled increase, as not to derail the (very) slow recovery we are on. And in a way, a little inflation might be good – inflation has always been a normal part of the economy, and running away from it is probably not the smartest thing in the world to do – at least long term.

And besides, inflation is also sometimes good for businesses, which I’ll discuss next time. Now, let’s see what I have for lunch today…

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