May 2021 Inflation | General financial discussion | Discussion forum

The U.S. Federal Reserve made an announcement to-day that seems to indicate interest rates will edge up.

Alexandre said
I keep reading on CNN Money, among other places, that inflation benefits businesses and does not really impact customers.

For the benefit of those who do not read CNN Money, could you expand on that? How does it benefit businesses with little impact on customers?

HermanH said

Alexandre said
I keep reading on CNN Money, among other places, that inflation benefits businesses and does not really impact customers.

For the benefit of those who do not read CNN Money, could you expand on that? How does it benefit businesses with little impact on customers?  

Business: When grocery stores' costs rise, stores will "mark up the full rate of inflation plus a little bit more." For example, if the price of meat that a store pays to its suppliers goes up 6 cents a pound, the store might raise the price it charges for that same meat by 10 cents.

Customers: Once the stores feel like they're safe raising prices a little — well, are you really going to notice if that gallon of milk you're buying has gone up to $3.85 instead of the $3.76 that the store could charge if it wanted to keep its margins steady? Nine cents on a single gallon probably makes little difference to anyone.

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Also, my favorite one from different CNN article, why customers are not impacted by inflation. That one says last year people didn't spend much money, so they have extra money left to spend this year, which for them negates inflation impact.

I like reading CNN, because I could find gems like that. Their finance related articles could be almost as funny as their political, sometimes more.

Bill, you are not arguing with me, but with whoever wrote that piece for CNN. I am definitely not in agreement with them.

To be fair, occasionally CNN would quote smart people:

Federal Reserve Chairman Jerome Powell acknowledged during his Wednesday press conference that there is a risk that inflation isn't going away as quickly as many economists think it will.

Really high interest rates was one of the things used back then to bring inflation under control:

Norman1 said
Yes, inflation was a serious problem at that time.

Adding the inflation rate and 5-year GIC rates (from David Trahair's article "GICs and the Inflation Argument" mentioned by Bill earlier) to the table gives a better context for those CSB rates:

Series	Issue Date	1981	1982	1983	1984	1985	1986	1987
S36	01/11/1981	19.50	12.00	10.50	11.25	10.50	10.50	10.50
Inflation (CPI)		12.50	10.90	5.80	4.30	4.00	4.10	4.40
5-year GIC		15.36	14.57	11.52	11.97	10.80	9.73	9.61

Fortunately, that hasn't been needed since.