PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Economic Sweet Spot: Solid Economic Growth, Strong Job Growth and Low Inflation

By at 11 January, 2019, 1:12 pm

Small Business Insider

 

by Raymond J. Keating-

More good economic news emerged on Friday (January 11) with the U.S. Bureau of Labor Statistics reporting that the Consumer Price Index (CPI) actually declined by 0.1 percent in December. For good measure, from December 2017 to December 2018, CPI inflation ran at only 1.9 percent.

The December-to-December 2018 CPI inflation rate of 1.9 percent was actually slower than the 2.1 percent rate that prevailed for both 2017 and 2016.

It’s also worth noting that this slowdown in an-already-tame inflation rate over the past year occurred as the U.S. experienced stepped up economic growth and strong job growth. This, of course, flies in the face of the crowd that believes that faster economic and/or employment growth generates inflation.

In reality, stronger economic growth is anti-inflationary. As the old saying goes, inflation is about too much money chasing too few goods. A growing economy – that is, one producing more goods and services – works against inflation. Indeed, it’s interesting to point out that over the past decade, the two years in which we experienced the fastest CPI inflation rates – i.e., 2.7 percent in 2009 and 3.0 in 2011 – real GDP growth was miserable – i.e., -2.7 percent in 2009 and 1.6 percent in 2011.

To sum up, though we don’t have the fourth quarter GDP data in yet, it seems pretty clear that 2018 was a nice year for the U.S. economy, with strong job growth and solid economic growth combining with low inflation.

Indeed, that’s the economic sweet spot.

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

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