In the Lara-Murphy Report, we have a section “Pulse on the Market” where we give quick tidbits on various news items for people who don’t slavishly read Wenzel or ZeroHedge. Here’s the blurb I wrote for one issue:
==> Inflation or deflation? Depending on how you parse the numbers, you can “see” price inflation or deflation. Much of the mainstream press, fueled by Keynesian analysis, thinks that when the economy is recovering from the shock of a financial crisis, it takes years for the spending spigots to open up and put upward pressure on prices. And indeed, their preferred index of “core inflation” (which takes out food and energy prices!) shows a modest 0.7 percent increase from last year—the weakest dribble since the 1960s. On the other hand, those of us alarmed by Bernanke’s injection of a trillion new dollars in high-powered money into the banks, can point to not only stocks and bonds (which we believe are in another bubble), but also to producer prices. Specifically, the further up the chain—away from the beleaguered consumer—you go, the bigger the price spikes. In the past 12 months, here are the hikes in the various indices maintained by the Bureau of Labor Statistics: crude producer goods, up 12.8%; intermediate producer goods, up 6.3%; finished producer goods, up 3.5%. In contrast, the Consumer Price Index (which includes food and energy), rose only 1.1% from November 2010 to November 2011. We will watch these trends very carefully, but it sure looks like Bernanke’s is pumping in money on one end, while the unemployed, debt-ridden consumer has very little to spend on the other.
What do you kids think? As my recent mea culpa indicated, I obviously was wrong in thinking all the money-creation would have shown up in conventional CPI by this point.
But does that mean the Keynesian (or even Sumnerian) position has been vindicated? If money has been too tight lo these past two years, as Scott believes, would we see such high increases in the various PPI components?
I don’t remember seeing Krugman or Scott predict that producer prices would zoom upward. For sure, Mish didn’t see that coming. I remember Scott shrugging off gold prices as due to mining difficulties or whatever, and I know Krugman says that commodities are volatile.
That’s fine, and perhaps commodities have leveled off and will be fairly flat in 2011. But again I repeat, from the perspective of people who correctly predicted that official CPI wouldn’t zoom upward in 2009-2010, did they also beforehand call the big jump in producer prices?
If so, let me know. As Sitting Bull (?) says in that goofy movie with Dustin Hoffman, “I would like to meet this man, and smoke with him.”