Chief Economist Keating: Continued Calming of Inflation Is Good News for Entrepreneurship and Investment

By at 10 August, 2018, 2:55 pm

by Raymond J. Keating-

The U.S. Bureau of Labor Statistics announced that the Consumer Price Index (CPI) increased by 0.2 percent in July.

Over the past six months, CPI inflation has slowed dramatically from the previous six months. Specifically, from August 2017 to January 2018, inflation ran at an annualized rate of 4 percent. That troubling period gave way to a notable deceleration, with the annualized CPI inflation rate running at 1.6 percent from February to July of this year. Over the past 12 months, inflation registered 2.9 percent.

Two broader points are worth pointing out as the inflation discussion proceeds.

First, stronger economic growth – contrary to the mistaken “overheating economy” theory – does not fuel inflation, but actually works against higher inflation. After all, as we learned in Economics 101, inflation ultimately is about too much money chasing too few goods. Producing more goods serves as an inflation antidote. So, the stronger growth experienced during the second quarter worked against inflation, and if solid growth continues, that too will be good news for inflation (of course, other factors can work in the opposite direction).

Second, low and stable inflation itself helps economic growth by working against higher interest rates, reducing uncertainty, and by cutting the real capital gains tax rate. These are positives for helping to spur entrepreneurship and investment forward.

Strong economic growth and low inflation is an economic scenario that warrants celebration, and is obviously continued good news for entrepreneurs and small businesses.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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