BOZEMAN - Inflation is a concept most are aware of but may struggle to find the words to describe. It’s all over the media, but just what is inflation and how does it affect us?
Montana State University Associate Professor Carly Urban says that inflation is when there is too much spending and too few goods.
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“That could be population changes over time, and everyone wants more stuff because there are more people,” Urban said, “The general ‘cure’ for that, is that the Federal Reserve Board will increase interest rates, and make it more attractive to save, so the demand goes down.”
Urban describes the inflation in the 1970s as ‘textbook’, with an added stressor on the American producer. Most goods were manufactured in the United States at that time, so unlike today, ports and lead times weren’t a factor.
Today, the pandemic led to the ports closing, manufacturing plants to quarantine for an extended period of time, all while demand kept rising. Urban says that it’s hard to know now how large of an impact each factor has.
Inflation is a natural part of the life-cycle of the economy, usually hovering around 1%-to3%. Today, the inflation rate is nearly 6%, Urban said. With so many external factors affecting the economy, relying on the Federal Reserve Board is not a possible solution, Urban said.