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Why inflation hurts more than it did 30 years ago
Question of the Day
Kellogg, which makes Frosted Flakes and Pop Tarts, is increasing prices on some products to offset costlier ingredients. Kellogg is responding to soaring costs for commodities including wheat, corn, sugar, cotton, beef and pork.
Vickens Moscova, a self-employed marketer in Elizabeth, N.J., says he’s paying more for staples like cereal, bread, eggs and public transportation. Yet he’s making little from his savings.
“It is a huge pinch,” says Moscova, 25.
Though higher gasoline and food prices may lift the inflation rate in coming months, the Fed says it doesn’t think inflation will pose a long-term threat to the economy. The central bank projects that inflation won’t exceed 1.7 percent this year.
But if oil prices, now around $101 a barrel, were to go much higher, economists say heavier fuel bills would cause people and consumers to cut back spending on cars, appliances and other items.
Another recession would be possible if prices began to approach $150 a barrel. Back in 1983, a barrel of oil cost just $29.40 — or $65 in today’s prices, adjusted for inflation.
All that said, today’s consumers are fortunate that today’s lower rates mean one major household cost remains far lower than in the 1980s: a mortgage.
Thanks, in part, to the Fed’s efforts to push down loan rates starting with the financial crisis, the average rate on a 30 year fixed mortgage is below 5 percent.
The comparable rate in 1981? 18 percent.
By Matt Kibbe
The short-term deal will assure long-term overspending
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