Last night I heard some chains rattling and was visited by a spooky economist who spake thusly:
So a lot of the austerians are pointing with glee at the latest BLS figures, showing year/year CPI is up 9.4 percent. Does this mean the deficit hawks have been right all along? Was Dick Armey on the money when he said crowding out would wreck the recovery?
Umm, no. Everyone serious who has looked at the data agrees that this is a one-shot surge in various staples due to the panic over Japan’s reactor meltdown. Apparently the folks at the Heritage Foundation don’t understand psychology.
But as the chart below indicates, core inflation had been behaving just as we evil Keynesians had been predicting, until last April. So unless John Boehner wants to argue that Big Government leads to Big Tsunamis, there’s truly nothing here. It’s demand, stupid.