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August 21, 2008

How bad is inflation?

It seems like the economy is being battered by three things now: job losses, problems in the housing market, and higher inflation. Let's focus today on inflation. How bad is it? Are we seeing some of the worst statistics on inflation in recent years?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, if this will make people feel better, we really aren't seeing the worst inflation that we've ever had. In fact, 30 years ago, we had inflation in double-digit levels. Right now, the latest reading that we have on overall inflation shows that prices are going up at about a 5 percent rate. That's on average, some are going up more, some going up less. But the interesting thing here is that it's really an inflation problem in two areas: food and fuel. In fact, if you take out food and fuel - which account for about 20 percent of consumer spending - you find that for the other 80 percent of what we spend our money on, prices are going up at about 2.4 percent a year, only slightly higher than the 2.2 percent average for this entire decade. So I think it's safe to say that we don't really have a runaway inflation problem in our economy. We have an inflation problem in two areas - food and fuel - and actually on that count there is some reason to be optimistic. Many forecasters see fuel prices and food prices - at least in the short term - actually going down."

Posted by Dave at August 21, 2008 08:00 AM