That nasty “I” word…inflation is making headlines again and helping to kick stock prices around like a ping-pong ball. Just about the time we have grown accustomed to what economists like to call “benign” inflation, prices are inching up.

The classic definition of inflation is a persistent increase in the price of goods and services in the economy as the purchasing power of money decreases. The opposite of inflation, or deflation, is an economy where prices are falling and the purchasing power of money is increasing.

Putting this in perspective, there is a web site run by the University of Miami and Wake Forest University where you could enter a value in any year going back to 1665, and relate the purchasing power of a dollar up to year 2003. Checking a few years at random, you would find that in the year 1700 today’s dollar would buy $23.66 of goods. In 1865 the figure was $11.23. In 1900 a dollar today would buy $21.79, and by 1980 a dollar would buy $2.23 in goods and services.

Inflation has been a constant in our economic history, and except for periods of war and the 1972–1982 years, stayed under 5%. Long, continuous periods of deflation have also been a part of the picture. Historically our long-term deflation was the end result of increased efficiency as we opened the west and made incredible technological advances in the 20th century.

In today’s dollars, 1981 oil is worth about $92 a barrel…that’s about 50% higher than we are actually paying, and we are using less!

While I realize this is not on your mind when you are pumping $50 worth of gas in the family SUV, keep in mind that our household income has gone up more rapidly than inflation, giving us greater purchasing power today than we had in 1981.

Many of the current financial press discussions of inflation center on the impact of rising energy prices and the projected tightening of the job market in 2006 and beyond.

Another view on inflation has been expressed by best-selling author, Harry Dent, in his book “The Great Boom Ahead,” and his latest, “The Next Great Bubble Boom,” Dent makes a case for inflationary pressures resulting from younger workers moving into the work force. Younger workers cost more to train, are less productive, and more costly to employ. Since they make less and want more, they borrow to finance their entry into adulthood. The net result is higher prices, higher demands for money (increase in interest rates) and higher inflation.

If Dent is correct, since there are fewer young people coming into the work force, this blip up in inflationary pressures will be short-lived and not change the secular trend of inflation, which has been sloping down since 1982.