Should we be worried about inflation when GDP, sales, and most p

As the recent G8 meeting showed, many policy makers across the globe are concerned that the extensive borrowing and spending undertaken by governments to stimulate the economy may lead to inflation.  However, other economists have cited the weak current Gross Domestic Product (“GDP”), low sales demand and negative profit numbers as justification that inflation worries are either premature or potentially off-base entirely.

At Hennion & Walsh, we note that inflation can occur in a period of stagnating demand – remember the “stagflation era” from the 1970s? We also point out the definition of inflation as supplied by YourDictionary, which states “When money enters circulation at a rate that is higher than the supply of goods available, inflation is occurring.”  As a result, it can be argued that price increases seem to be the eventual result of inflation, not necessarily the cause of it.

I believe that governments (the U.S. included) must eventually take responsible steps to prevent inflation from taking off significantly in the intermediate-long term.  I also believe that the current trend of rising commodity prices could indicate that the threat of inflation is no longer just a future concern but may be upon us already.

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