When you hear the word “inflation,” you likely have a lot of negative thoughts.
But according to the University of North Florida’s Local Economic Indicators Project, or LEIP, a little more inflation could be a good thing for the Jacksonville area economy.
“The slightly rising oil and gasoline prices through the end of the first quarter of 2015 and into April have helped prices to rise in general,” the organization said in its latest quarterly newsletter, LEIPLINE.
“Although we routinely prefer that inflation be low to moderate, given the stagnant growth phase that we are in, a little more inflation might be a coincident indicator that growth is also returning to normal,” it said.
Nobody likes paying higher prices, but increasing costs for consumer goods are an indicator of economic growth.
LEIP collects data for a consumer price index for the Jacksonville area and one “positive driver” of the economy in the first four months of this year has been a rise in automobile prices, the newsletter said.
“It’s an indicator that consumers are willing to pay more for durable goods,” said UNF economist Paul Mason, who coordinates LEIP.
A rise in housing prices in three of the first four months this year, which like automobile prices are a significant part of the CPI, is also a positive sign.
LEIPLINE said that the Jacksonville area CPI has suggested an annual inflation rate of more than 3 percent in three of the first four months this year, but inflation has generally been higher earlier in the year in each of the last five years. So the early rise in 2015 is not necessarily an indicator of a faster-growing economy.
However, there are some other positive economic signs, including a continued drop in unemployment in the Jacksonville area.
“We are still optimistic that unemployment will fall below 5 percent by the middle of the year,” LEIPLINE said.
“Like the national outcomes, part of the movement is positively associated with increased employment opportunities locally. However, the discouraged worker issue and the numbers of individuals leaving the work force is evident locally too,” it said.
Other positives in the employment outlook include growth in help wanted advertisements and a decline in initial claims for unemployment insurance.
Overall, LEIP’s index of leading economic indicators for the area has been higher all year and up in six of the last eight months, but not advancing as much as the national index.
“Building permits have been pretty stagnant in recent months except for in March, but they are considerably better than one year ago,” LEIPLINE said.
However, LEIP’s local stock index has lagged behind the Dow Jones industrial average in three of the first four months this year.
“Because our local companies are generally smaller than those in the Dow, it perhaps is not surprising that in a climate whereby bigger is viewed to be better, local stocks are being outperformed,” LEIPLINE said.
Although the economy isn’t moving as fast as some people would like, Mason said the outlook is generally favorable for the Jacksonville area.
“I’m generally optimistic at this point,” he said.
According to LEIPLINE, the Federal Reserve Board’s monetary policy may be holding back the economy, not only in the Jacksonville area but nationally.
“We continue to believe that the culprit in this malaise is the Federal Reserve’s monetary policy that seems stuck in the 1942-51 time frames with its fundamental goal of maintaining low borrowing costs for government,” the newsletter said.
“Higher interest rates will not crowd out private investment in the current climate because there is such a massive glut of loanable funds worldwide. But what higher interest rates will do is increase the short and long run costs of federal government excesses, which should motivate our political leaders to reduce their spending and permit the private sector to grow again,” it said.