Friday, August 15, 2008

Juxtapositions: Inflation and Profits

On page one of the business section of the LA Times today, a story noted that the 5.6% July inflation rate is the highest since 1991. This bad news was accompanied by a documented drop in real wages and a rise in unemployment claims.

Another story in the same business section, page two, reported that Wal-Mart profits were up 17% in the second quarter, a greater increase than was expected. This is due to "tight inventory controls and a renewed focus on low prices that is attracting financially squeezed shoppers."

(Those low prices are primarily the result of cheap labor and production costs in other countries, but that's another story.)

So, if you're a financially squeezed shopper, you can go to sleep tonight knowing that the discomfort that forces you to shop at Wal-Mart is making money for the stockholders who probably shop elsewhere.

However, if you're fortunate enough to be a saver, you can rest better knowing that, thanks to the inverse relationship between interest rates and inflation, interest rates will probably go up and you'll earn more on your savings.

Unfortunately, as a result of those same high interest rates, you probably won't be able to afford to buy a home. But prices are low on housing right now, thanks to the loud pop of the housing bubble, so maybe you can pull it off.

Unless you lose your job, of course, which is likely because businesses are under pressure to make more profits for their investors, so they'll be cutting costs wherever they can and one of those costs could be you.

And even if you keep your job, the money you're making isn't worth what it used to be because of inflation.

Simple, huh?

© 2008 Cynthia Friedlob

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