Producer Prices Up 5.5% For the Year; Krugman Draws a Line
Again kids, I acknowledge that the official price inflation measures are not behaving as I was warning last year. Even so, let’s also realize that we are not on the verge of a deflationary spiral. The latest PPI report shows that producer prices for Finished Goods in April were up 5.5% from 12 months earlier.
Speaking of price deflation, Paul Krugman has solidified the line in the sand. So fortunately one of us is going to be wrong:
Ever since the economic crisis began there have been two schools of thought about inflation prospects. One school basically has a Phillips curve, aggregate demand view: because major economies are operating far below full employment, we should expect disinflation, and possibly deflation. The other is basically monetarist with a touch of Austrianism: look at all the money central banks are printing and governments are borrowing, it says, inflation — maybe even hyperinflation — is just around the corner.
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What about the US? Well, various measures of core inflation — like the Dallas Fed trimmed-mean deflator, the Cleveland Fed median CPI, and indexes excluding food and energy have all fallen from 2.5-3 percent inflation at the start of the crisis to around 1 or lower. If the trend continues — which it will unless the recovery is stronger than I fear — deflation is in our future, maybe next year.
So there you have it. If we have stagflation in the next few years–which I am still predicting–then Krugman is unambiguously wrong. There is no way he can hedge himself out of what he wrote above.
On the other hand, if we have a Japanese-style slump with very modest price inflation, then I am unambiguously wrong.
If we have rapid economic growth and high price inflation, Krugman can claim victory and I can say I was half right.
If we have rapid economic growth and low price inflation, Krugman and I will have to find other jobs.
In my opinion, ingoring food and energy prices is silly. The folks that are most impacted by inflation are the poor, who spend a higher proportion of their incomes on food and energy.
1. Disinflation is an interesting term.
2. “deflation is in our future, maybe next year.”
I do not believe you have him here. The future is unlimited and I have seen him weasel out of tighter spots than this appearantly clear statement. At a minimum, the future will have some “shock” or other unseeable event that will allow him to say he meant ceteris paribus.
Funny how that deflation is always in the future.
You leave out the recent productivity increases — great output at lower costs should be sending prices lower.
…while over here in the UK, the inflation party has really started (CPI now up to 3.7% & RPI now 5.3%).
Predictable nonsense from analysts about food and energy (tor the benefit all the proverbial anorexic cyclists).
http://news.bbc.co.uk/1/hi/business/10121176.stm
My money is on you Bob… Krugman is basically a well spoken chimp throwing darts at a board.
“If we have rapid economic growth and low price inflation, Krugman and I will have to find other jobs.”
Might not be a bad thing for Krugman to go back to his old job of defending free trade or for you to worry about things other than forecasting. Fortune telling is overvalued among economists.
An article just for you Bob…..
I See Inflation Everywhere
http://www.financialpost.com/news-sectors/story.html?id=3030888
azmyth, Krugman’s days of defending free trade are long gone. He’s no longer an economist, but rather a political activist.
“On the other hand, if we have a Japanese-style slump with very modest price inflation, then I am unambiguously wrong.”
If that happened, would Austrian Business Cycle Theory be wrong, or just you?
Daniel Hewitt: I know, it’s so sad. I can still hope he sees the error of his ways.
WSJ today reports inflation at a 44-year low. That’s ‘disinflation.’
Gene, just be careful with the inflation measure you are using. They are taking out food and energy for that one I believe.