The recent CPI data indicated that prices are rising on an annualized basis of 2.2%, higher than the 1.8% recently forecasted. This actually is good news. With the increase in prices comes eventual wage inflation. This is good for those with work. Also, with increased anticipated aggregate prices, companies will also anticipate an increase in demand. With higher wages more people have more money to spend. If companies expect more demand, they will be more willing to hire. Governments love inflation, within reason and so do economists.

The estimated increase in inflation is also good in the sense that inflation has been persistently low, too low in fact. The Federal Reserve has been concerned about prices being too stagnate and too low, and this has forced them to try to stimulate the demand through quantitative easing. The FED has been trying to get out of this policy, but with prices too low, their hands have been tied. With the potential increase in prices, the FED has more flexibility and can eventually raise interest rates and take some of the excess money out of the system.

What does this mean for businesses? It essentially means that businesses need to prepare for the day when money is not as cheap as it now (it is at historic lows). They need to prepare to pull the trigger on their big ticket items and capital equipment soon, or if their existing debt is at high interest rates, they should refinance and reduce their debt servicing payments.

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