Are You Ready for Inflation?

With signs of economic recovery showing, there are concerns that inflation could come with economic growth. This is a common thought, since economic growth often means that prices rise as well, eroding the purchasing power of the dollar. And, indeed, an economist at RBS Securities Inc. believes that inflation is on the way, reports BusinessWeek:

“Inflation will start to tick up again as we get stronger growth,” Stanley said today in an interview on Bloomberg Radio. “I don’t think the Fed is ready to own up to that.”

As a result, there are some expectations that the Fed will have no choice but to raise interest rates in order to combat inflation. It is possible that the Fed will raise rates to 3% by the end of 2010, from their current rate at between 0% and 0.25%.

For savers, this is good news, since it means that they will see a higher yield on their cash investments. For borrowers, though, it means that they will have to pay more in interest charges. If you have a variable mortgage rate, it might be time to refinance. If you have credit card debt, it is best to pay down as much as you can before rates move even higher than they already are.