Inflation: Prices Rising at Fastest Rate Since 1981

Posted by Digby, Hullabaloo at 3:54 AM on August 20, 2008.

Here's a startling headline:

Wholesale prices rising at fastest pace since 1981

I'll defer to the many highly qualified economist bloggers out there on the details, but I will say that my recollection of that period is of a lot of social and cultural turmoil that led to some very undesirable political outcomes. Traditionally, inflation was actually good for average workers because it meant a rise in wages and the value of their biggest financial asset, their houses. That period featured high interest rates, high inflation and high unemployment, which was a recipe for a lot of economic angst. Clearly housing isn't going to be a silver lining this time either, and wages aren't rising so far. Lowering interest rates is the only blunt tool the Fed has to deal with inflation and that doesn't seem to be working (unsurprisingly, since the cause is the high cost of a necessary commodity.) So we are in a somewhat different economic world than 1981, but one that might just have a similar effect on the body politic.

Inflation is one of those things that makes the average citizen very, very nervous as we saw earlier in the run up in gas prices. In fact, it often makes them willing to believe completely irrational things (drill,drill,drill ...) Rising prices are right there in front of their faces, reminding them every day in the most mundane transactions that they are losing ground. The psychological effect is immediate and real.

If this keeps up -- or even if the perception stays with us for a while -- I would predict the country is going to be in a strange and unpredictable mood going into this election, which doesn't necessarily translate into a bunch of ten point plans on how to boost the economy. The candidate who can successfully calm their fears -- or redirect them -- will likely be the one they turn to.

Tagged as: inflation, economic recession

Digby is the proprietor of Hullabaloo.