PSIApril 21, 2021 -
Categorized in: IAG News
It seems like I spend more time focusing on PSI (pounds per square inch) in spring than any other time of the year.
All of the kids’ basketballs, footballs, and kickballs that sat in the garage all winter need some air. All of the family’s bike tires need to be reinflated before the first ride of the year. The car and camper tires all need to be checked.
Until you stop and think about it, you probably don’t realize how important proper inflation is to your everyday life.
Too little inflation and you risk a flat tire or a really lame kickball game. Too much inflation and you could literally blow things up.
Thankfully, most inflatables come with guidelines that tell you the appropriate PSI for optimal performance. Unfortunately, our economy is not one of them.
Last month’s inflation figures indicated that prices are starting to pick up. The Federal Reserve and Congress have been very busy adding air [money] to the economy to create inflation, and they appear to be succeeding.
We have already seen significant inflation in specific areas of the economy – home prices, gas, used cars, and lumber. The challenge is determining when to turn the economic air compressor off.
Similar to a tire, adding too much pressure within the confines of limited economic capabilities (in some cases further restricted by supply chain issues) can result in unintended consequences.
As people begin to expect prices to rise, they tend to accelerate their purchases to lock today’s relatively low prices. This causes prices to rise by increasing current demand which further reinforces people’s impressions that future inflation could be higher.
The Federal Reserve believes any inflation pressures that develop will be short-lived and will be easily contained by letting air out (reducing their bond purchases or raising interest rates) of the economy. We will all be relying on them to maintain reasonable inflation expectations before economic PSI gets too high.
Quote of the week: Milton Friedman: “Inflation is on form of taxation that can be imposed without legislation.”
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