Is inflation really so bad? 

Inflation, inflation, inflation. We keep hearing how terrible it is, but is it really as bad as it seems?  

We know grocery and restaurant prices are up. We’ve been warned about the impact of tariffs on consumer products. And yet people still seem to be buying. Tariffs haven’t taken much of a bite after all. Corporate profits are up, as is the stock market. Holiday sales are expected to rise 4 percent this season and GDP is projected to be around the same for the last quarter. Restaurants are busy. Airports are jammed.  

The current inflation rate is at 3 percent for consumers. This is much lower than we saw post-pandemic. It’s also lower than the average inflation rate of 3.5 percent recorded between 1950 and 2020. And yet everyone is concerned. The same goes for businesses; reports like this one are among the many that say that inflation is small businesses’ “number one worry.” 

I’m not sure I believe this is such a big worry. Yes, for businesses some costs are higher. But many critical costs have remained the same since the beginning of the year, when President Trump took office. Don’t believe me? Take a look at producer prices during that period.  

If you’re a manufacturer, like many of my clients, you’ve definitely seen significant price increases in some of your key materials over the past year. Steel piping, copper products, machinery and equipment, industrial gases and the cost of iron and steel have gone up anywhere between 4 to 10 percent. 

However, many other primary costs, like corrugated paperboard and unlaminated polyethylene film and sheet (all used in shipping materials), plastics and resins and lubricating oil and greases have remained virtually unchanged, and the costs of industrial chemicals have actually decreased since the beginning of the year by as much as 4 percent. Natural gas, a key component of energy, has fallen in cost by 50 percent since January. Both long-distance trucking and deep sea freight costs to move materials have also fallen, from between 5 to 9 percent. 

When taking all of this into account, total manufacturing costs in the country have risen just 2 percent since the beginning of the year. Not exactly earth shattering. 

If you’re running a farm or in the agriculture industry, some costs, like fertilizer expenses, have gone up about 4 percent. But animal feeds, pesticides, farm machinery and equipment, farm plows, harrows, rollers, pulverizers and attachments and most other commodity farm products are mostly unchanged since the beginning of the year. Grain cost has fallen 16 percent. 

My clients in the construction industry have seen the average cost of all of their materials go up about 6 percent, led by pottery, ceramics and plumbing fixtures, which have increased 7 percent. But their biggest expense — lumber and plywood — are only up about 2 percent, and steel nails, staples, tacks and spikes are up 3 percent. The costs of gypsum building materials, equipment rental and cement and concrete  have remained mostly unchanged since the beginning of the year. 

Overheads have gone up, led by healthcare and other insurance. Salaries, according to HR company ADP, have increased 4.5 percent over the past year. But hourly wages, according to HR company Paychex, have gone up about 2.6 percent (among small businesses, who employ half of the country’s workers). Interest rates and the costs of borrowing have come down this year too, thanks to federal reserve cuts. 

All of this seems back to normal to me. Some costs are up. Some are unchanged. Some are down. Most economists will tell you that “some” inflation (between 2-3 percent) is good for a growing economy. The problem is that we’ve had so much inflation over the past five years, thanks to government spending, that consumers are still reeling from the adjustment, even though our annual inflation is now back down to a reasonable range.  

Speaking of government spending, economist Milton Friedman once said that inflation “is a monetary phenomenon” and the result of “too much money” or of a rapid increase in the quantity of money than an output. “Inflation,” he famously said, “is made in Washington and nowhere else.” 

He’s right. Our money supply — the amount of money circulating in our economy — remains at historical highs and is chasing too little output. Government spending exceeds $7 trillion a year and even Elon Musk can’t make a dent in it. National debt is exploding. Until the supply of money available catches up with the demand for it, inflation will remain elevated. It could even go up more. But even at these current rates, it’s still not that bad. And, at least for most of my clients, it’s still very manageable. 

My prediction is that, barring outside events that cause another unusual spike in government spending, we’ll continue to see inflation rates at the current normal levels. People will be used to this. Businesses will adjust. Other topics will take priority.  

Gene Marks is founder of The Marks Group, a small-business consulting firm.