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Federal Reserve says it wants things to cost more for Americans. Here's why that could be good.

Hundreds Fanned Out
Posted at 2:56 PM, Apr 28, 2021

On Wednesday, the Federal Reserve will meet for what could be the last time before the central bank decides how and when it will start rolling back policies it adopted to combat the effects of the pandemic.

At a meeting last week, Fed chair Jerome Powell said the government would like to see inflation stay above average for “some time.”

For many Americans, that might sound like an ominous proposal as it would mean things like groceries, restaurant bills, and leisure activities would all cost more, but Robert Scott, a senior economist with the Economic Policy Institute, says higher inflation is actually a good thing.

“A tight labor market and a rapidly growing economy, if we can get there, is going to sustain higher levels of wage increase,” explained Scott. “So, you might be paying more: 2-3% a year more for your food, and groceries, and rent, but your wages might be rising at 3% or 4% or 5% a year. That’s good news. If wages are rising more than prices, you’re going to see a rising standard of living.”

When the economy sustained one of its worst recessions in history due to the pandemic last year, prices, and therefore inflation, dropped as spending slowed dramatically.

To offset those losses and to make up for the fact that inflation has been under the annual 2% target for the past decade, the government wants to see more inflation to get us back on track as inflation comes in response to economic demand.

“On average, prices will go up 2-3%. That means it’s going to get more expensive,” said Scott.

If we take the averages of some common items we can see how a 3% rise in inflation might affect your spending.

The average price of a cheeseburger in the U.S. is $4.49. If we take what the average American eats, three cheeseburgers per week, and extrapolate over the course of a year, a 3% increase in prices would mean the average American would spend an extra $21.45 on cheeseburgers alone.

The same goes for diapers, as Americans could expect to pay an extra $14.85 for them, as well as an extra $56.67 on unleaded gas.