Inflation

Inflation

Saw this meme about inflation this morning. I know prices have been going up, but they've been going up since I got out of high school and Nixon took us off the gold standard (1971). It seems like they have been going up faster lately, which I blame on the government's profligate spending. I don't know how accurate this meme is but those items which have gone up 50% (for all intents and purposes 49.3% is indistinguishable from 50%) make it look really bad. But how bad is it, really?

So I took the nine numbers listed above and computed the average. It comes out to 31%. So what rate of inflation do you need to reach 31% in four years? 7%. That's only 2% more than the 5% that I use as my default value for inflation.

My general rule is that a business needs to be making 3 times as much as the rate of inflation. One third of that 21% profit goes to taxes, one third goes to compensate for inflation, and the remaining one third is what the investors (the owner or shareholders) can take home. At an inflation rate of 7%, a business needs to be returning 21%. So while profits that large companies are reporting may seem excessive, it is probably no more than they need to survive, and we all depend on those businesses to support our civilization.