We are all feeling the impact of rising prices in so many places. When you go to the grocery store, fill up your gas tank, or buy any of the many items in short supply, prices are soaring. Federal Reserve Chairman Jerome Powell had calmly responded to recent inflationary spikes by claiming they would be “transitory”. Powell suggested that prices were rising due to pent-up “post pandemic” buying. The Fed was comfortable with a little inflation of 2 % or slightly higher, which could jump start a stagnant economy. But price concerns are increasing for many consumers.

Even Powell now indicates inflation will extend far into 2022. Other economists question whether these spiking prices will actually end in the near term. Over the past decade, inflation has been relatively quiet. While some expenses like health care and higher education have been hard to contain, many costs have moved up at a gradual pace. Relatively stable prices have helped make financial budgeting more predictable.

But inflation has been a persistent problem in the past and it can be hard to control. We forget that previous double digit price increases have taken place. Borrowing costs have been much higher. Today 10-year treasury bills provide 1.6% interest. But in 1981 these same 10-year treasury bills paid over 14% interest to compensate nervous investors who feared future inflation. No economist I follow predicted back then we would have 40 years of declining interest rates. Can that long downward trend be coming to an end?

Things do feel different now and price increases may gain long-term momentum. We will need to monitor these inflationary trends more closely and adapt. It could impact our spending, savings, and investments. Perhaps the best advice on the recent world-wide inflationary trends was headlined in a recent issue of the Economist, “Don’t panic. But keep a watchful eye.”