13 May 2011

Update on (Price) Inflation

Federal Reserve, Inflation 59 Comments

I know I’m supposed to hang my head in shame at how some of us have been Chicken Littles on price inflation, but I’m still not sure it’s time to throw in the towel. (For the record: Yes I have definitely been wrong in the specific timeframes I gave for when we’d see certain things happening with CPI.)

For example, looking at the latest numbers from the BLS, coming from the Producer Price Index and Consumer Price Index, we get the following 12-month changes:

Consumer goods except food and energy: +1.3%
Consumer goods: +3.2%
Finished goods: +6.8%
Intermediate goods: +9.4%
Crude goods: 23.7%

And in light of all this, I’m supposed to just roll over and say, “Yep there is clearly no sign of price inflation in the system.” ? I don’t mind people saying, “I think this is a one-time blip in commodities that will work its way through the headline numbers,” like so.

But Krugman et al. are going much farther than that, acting as if only Newt Gingrich could be so stupid as to think there is any sign of inflation. Steven Chapman (HT2 David R. Henderson) goes so far as to say, “The last epidemic of inflation, in the 1970s and early ’80s, was a searing experience, from which the Federal Reserve learned lessons it has no desire to repeat. Is inflation coming back? Sure. Right after the Ford Pinto.”

Really? That’s how confident we all are in this guy?

59 Responses to “Update on (Price) Inflation”

  1. Joseph Fetz says:

    Bob, I am with you there. I deal with so many people that throw the CPI in my face as proof of low inflation (they also like to throw in the “by historical standards” part). In either case, I often show them the PPI. Sure, they are all government numbers, but there is no discounting the fact that input prices will necessarily effect future expectations of prices with regard to finished consumer goods. It is the reason that I often am guilty of focusing on goods whose demand curve is inelastic; commodities and producer’s goods further removed from the consumer most definitely fall into this category. However, I do not think that the average consumer has enough money or resources in order to purchase the consumer goods if their price increases at the same clip as that of those realized by the producers. Consumer goods are quite elastic when it comes to demand (esp. when the consumers don’t have the funds to purchase them), and I am seeing another round of QE and stimulus in our future.

    IMO, we are looking not at hyperinflation, we are looking at high inflation in the productive sector and moderate inflation in consumer goods. The result will be a stagnation, high unemployment, and continued liquidity injections for the foreseeable future. While this may be similar to Japan’s lost decade, I do not see the increase in productivity that Japan has had in the past. And, since Japan is now looking at an even worse outlook due to the disaster, their economy will most definitely be hampered extraordinarily. We are very dependent upon Japanese production and treasury purchases, so it is quite clear that their pain will be felt by Americans, as well.

    What I see happening is inflation in the goods required for any hopes of increased American productivity and trade, and that consumer goods will continue to see insubstantial demand (due to input costs). Couple that with the inevitable austerity that our government will hand down, I just don’t see any other outlook other than that of a grim outlook for the American economy. We are debt ridden, our capital has been wasted over the past 30 years, and our currency is just beginning to see the fate of the British Pound in the first part of the last century. We’re in for substantial unemployment, and an overall “tough go” of things for the next decade or more. Everybody knows it, they just don’t want to be true to themselves and face it.

    • Blackadder says:

      Bob, I am with you there. I deal with so many people that throw the CPI in my face as proof of low inflation (they also like to throw in the “by historical standards” part). In either case, I often show them the PPI. Sure, they are all government numbers, but there is no discounting the fact that input prices will necessarily effect future expectations of prices with regard to finished consumer goods.

      That *sounds* plausible, but look at the charts Desolation Jones links to below. The PPI is commonly higher than the CPI, and the fact that the PPI rate is high today doesn’t mean that this will translate into a simiarlly high CPI rate in the future.

      • Joseph Fetz says:

        Yes, I understand that ultimately it is the consumers who dictate what the final price of a good will be, that is why I said future expectations of prices rather than actual prices (the prices will be wherever the supply and demand curves intersect, and what level the marginal buyer falls at).

        However, it is clear that we are seeing great inflation in input prices (producer’s goods and commodities), and that this will cause producers to attempt to increase the prices of their finished goods. Whether or not the prices of these finished goods will clear the market at a higher price is a different story. But, that is the problem. And, this will only serve to exacerbate the unemployment problem, as well as the maintenance of capital.

  2. David S. says:

    Bob, I do give you credit for this post, for what it’s worth.

    I frankly think that something like the behavioral analytic phenomenon known as blocking, or functional fixedness, which is the cognitive psychological equivalent, is occurring here. That’s essentially where old learning is preventing new learning, with implicit, but unrecognized erroneous associations disallowing course corrections in thinking. In this case, it was obviously an abstract process, which was basically over-generalization through transitive processes. Given the brain’s limited resources, as associations seem to be confirmed by experience, they increasingly drop out of conscious awareness, to free up attentional resources to focus novel predictive contexts.

    Unfortunately, I think economics is a religion or ideology to you first, and there’s no room for science in your perspectives. As a result, if you ever do come around to using a scientific, evidence-based approach, you’ll start coming late to conclusions and have a lot of “duh” moments, kind of like when the catholics finally realizing Galileo was right.

    • Bob Roddis says:

      There is no evidence that you even have a clue. What mental illness prevents non-Austrians from familiarizing themselves with basic Austrian concepts?

    • James E. Miller says:

      David S.,

      I admit I am not the smartest dude around but it seems like you are placing blame on inflationary expectations for dragging down the economy. At least that’s what I get from the first paragraph of your post.

      • David S. says:

        Maybe I didn’t express myself clearly. I’m suggesting cognitive pitfalls are responsible for Murphy failing to see how obviously wrong his ideas about inflation are.

        • Major_Freedom says:

          Murphy was only wrong about inflation because he utilized your preferred method of “scientific” economics, which really just means positivism.

          Austrian economics, properly utilized, does not attempt to predict what humans will choose in the future and when they will choose it. In order to make inflation predictions, that is, when in the future inflation will start to rise or fall relative to a given rate, and what rates will transpire, requires one to predict from the outset what knowledge people will gain in the future, and what their actions based on that knowledge will be, and when they will act in those ways.

          There is no natural science scientific method that can do this.

          All action that is based on knowledge cannot be predicted like the behavior of unthinking matter behaves, because knowledge itself is unpredictable. The whole point of positivist methodology is to acquire knowledge that is not known at the outset.

          For you to sit there on your ridiculously uninformed high horse, claiming that Murphy’s inaccurate prediction has anything to do with Austrian economics, as if his erroneous non-Austrian pro-positivist economics prediction entitles you to claim vindication for your own nonsense, is the height of hubris and stupidity.

          You cannot predict what other people will learn in the future. You cannot predict what people’s actions based on that knowledge will be either. If your prior guess, and it was/is a guess, is correct, then you cannot claim that aha, positivism is superior to Austrian economics. For there are folks who utilized and utilize the same nonsensical astrological method as you, and they predicted wrongly. Does this by itself mean positivism is inferior to those Austrians who did not make any predictions regarding the timing and size of inflation? No. That is now what makes Austrian economics superior to positivism.

          Economics to you is a mystical endeavor, because you actually believe that the self-contradictory, inapplicable to learning/acting objects method of positivism is somehow a valid method for understanding economic principles.

          You will never find any truths about economic principles from studying past data. Past economic data is a function of what people knew in the past, and what their past actions were based on that past knowledge. People learn over time. They acquire new knowledge, and sometimes forget past knowledge. There is nothing at all magical about what people did in the past that enables us to know what people will do in the future.

          When you consider the world’s “premier” positivist economists, what you will find is a dismal record of perpetual failure. Positivist economics is the mainstream economics of this age, and the overwhelming majority of the top positivists did not and could not predict the timing, and size of the last boom and collapse.

          Compare the mainstream to the Austrians, who while not predicting exactly when and to what degree the housing bubble and collapse would occur, did use Austrian methodology to explain the housing bubble before it collapsed, and why it will inevitably collapse. Here’s a list of the Austrian economists who correctly anticipated the housing bubble and collapse:

          Anderson, William L. 2001. “The Party is Over,” February 20

          Anderson, William L. 2003. “Recovery or Boomlet?” July 07

          Anderson, William L. 2007. “The Party is Over – Again,” August 30

          Beale, Theodore. Various dates.

          Blumen, Robert. 2002. “Fannie Mae Distorts Markets.” Mises Daily, June 17

          Blumen, Robert. 2005. “Housing Bubble: Are We There Yet?” May 8

          Bonner, Bill. tba

          Corrigan, Sean. tba

          Crovelli, Mark R. 2006. “Gold, Inflation, And… Austria?” May 31

          De Coster, Karen. 2003. “The House that Greenspan Built: Irrationally Exuberant Wall Street Welfare Parasites and Their Fed-God.” September 12

          DiLorenzo, Thomas J. 1999. “Regulatory Sneak Attack.” September 16

          Duffy, Kevin. 2005A “The Super Bowl Indicator,” February 5

          Duffy, Kevin. 2005B. “Honey, I Shrunk the Net Worth,” March 3

          Duffy, Kevin. 2005C. “Alan, We Have a Problem,” August 2

          Duffy, Kevin. 2005D. “Panic Now and Beat the Rush,” September 24

          Duffy, Kevin. 2006. “Are Mortgage Borrowers Rational?” June 24

          Duffy, Kevin. 2007A. “It’s a Mad, Mad, Mad, Mad World,” May 22

          Duffy, Kevin. 2007B. “For Whom Do the Bells Toll?” Barron’s, June 18

          Duffy, Kevin. 2007C. “Financial Markets on Crack,” August 22

          Duffy, Kevin. 2007D. “Mr. Mozilo Goes to Washington,” September 15

          Economics of contempt. 2008. “The Unofficial List of Pundits/Experts Who Were Wrong on the Housing Bubble.” July 16

          Englund, Eric. 2004. “Monetizing Envy and America’s Housing Bubble.” July 19

          Englund, Eric. 2005A. “Houses Are Consumer Durables, Not Investments,” June 8

          Englund, Eric. 2005B. “Diminishing Property Rights Will Lead to a Higher Rate of Mortgage Defaults.”

          Englund, Eric. 2005C. “When the Housing Bubble Bursts, Will President Bush Practice Mugabenomics?” July, 19

          Englund, Eric. 2005D. “When Will America’s Housing Bubble Burst?” November 4

          Englund, Eric. 2006. “The Federal Reserve and Housing: A Cluster of Errors?” April 22

          Englund, Eric. 2007. From Prime to Subprime, America’s Home-Mortgage Meltdown Has Just Begun.” September 24

          Englund, Eric. 2008. “Countrywide Financial Corporation and the Failure of Mortgage Socialism.” January 28

          French, Doug. 2005. “Condo-mania.” July 11

          Grant, James. 2001. Sometimes the Economy Needs a Setback.” New York Times. September 9

          Karlsson, Stefan. 2004. “America’s Unsustainable Boom.” November 8

          Mayer, Chris. 2003. “The Housing Bubble.” The Free Market. Volume 23, Number 8
          August

          Murphy, Robert P. 2007 “The Fed’s Role in the Housing Bubble.” December 28

          Murphy, Robert P. 2008. “Did the Fed, or Asian Saving, Cause the Housing Bubble?” November 19

          North, Gary. 2002. “How the FED Inflated the Real Estate Bubble by Pushing Down Mortgage Rates: Report As of 2002,” Reality Check, March 4

          North, Gary. 2005. “Surreal Estate on the San Andreas Fault.” November 25, 2005

          Paul, Ron. Various dates.

          Paul, Ron, 2002. Testimony to U.S. House of Representatives, July 16; text of speech in Woods (2009, 16–17):

          “The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

          “Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged overinvestment in housing.”

          Paul, Ron. 2000. “A Republic, If You Can Keep It” January 31

          Paul, Ron. 2002. “Government Mortgage Schemes Distort the Housing Market,” July 16

          Polleit, Thorsten. 2006. “Sowing the Seeds of the Next Crisis.” April 25

          Ptak, Justin. 2003. “Government Employees, Go Home!” November 12

          Rockwell, Llewellyn H, Jr. 2008. The Left, the Right, and the State. Auburn, AL: The Mises Institute

          Rogers, Jim. 2005. “Interview with Jim Rogers on the housing bubble.” April 22

          Rothbard, Murray N. tba

          Schiff, Peter. Undated A.

          Schiff, Peter. Undated B.

          Schiff, Peter. Undated C.

          Schiff, Peter. Undated D.

          Schiff, Peter. 2003A. Commentary, March

          Schiff, Peter. 2003B. Commentary, April

          Schiff, Peter. 2003C. Commentary, June

          Schiff, Peter. 2004A. Commentary, May

          Schiff, Peter. 2004B. Commentary, June

          Schiff, Peter. 2005A. Commentary, April

          Schiff, Peter. 2005B. Commentary, July

          Schiff, Peter. 2005C. Commentary, August

          Schiff, Peter. 2005D. Commentary, October

          Schiff, Peter. 2006A. Appearance on CNBC, January

          Schiff, Peter. 2006B. Speech to the Money Show Conference, February

          Schiff, Peter. 2006C. Speech to the Mortgage Bankers Assoc.

          Schiff, Peter. 2006D. Mortgage Bankers Speech to the Western Regional Mortgage Bankers Conference in Las Vegas; November 13

          Schiff, Peter. 2007A. Crash Proof: How to Profit From the Coming Economic Collapse (1st edition) New York, N.Y.: Wiley

          Schiff, Peter. 2007B. Appearance on Fox News – January 12

          Sennholz, Hans F. 2002. “The Fed is Culpable.” November 11

          Shostak, Frank. 2003. “Housing Bubble: Myth or Reality?” March 4

          Shostak, Frank. 2005 “Is There a Glut of Saving?” August 4

          Thornton, Mark. 2004. “Housing: too good to be true.” June 4

          Thornton, Mark. 2009. “The Economics of Housing Bubbles.” America’s Housing Crisis: A Case of Government Failure, Benjamin Powell and Randall Holcombe, eds., Transaction Publishers

          Thornton, Mark. Undated.

          Trask, H.A. Scott. 2003. “Reflation in American History.” October 31

          Wenzel, Robert. 2004. “Government Isn’t God: FDIC Sticks Banks With Bad Loans and Sticks Borrowers With Subprime Junk.” July 21

          Notice how Murphy has two articles in this list. So he did what Bernanke

          http://www.youtube.com/watch?v=9QpD64GUoXw

          could not do, even though Bernanke is as “scientific” and as “positivist” as they come.

          Hey David S., at the end of the day, even if Murphy was wrong about the exact timing of the inflation, he nevertheless risked sticking his neck out in possibly being wrong, which is more than anyone can say about your cowardly arse, who doesn’t contribute at all to economics, who seems to only get a sick form of pleasure out of smearing and mocking, and, quite frankly, insulting, Dr. Murphy, on his blog no less.

          Posivitism has added nothing to economics that a priori reasoning has not already shown to be true. The faith in positivist economics has resulted in economic destruction.

          You have added nothing to the field of economics, and yet you actually have the gall to accuse Murphy, and Austrians in general, of contributing nothing, despite the cornucopia of literature, papers, articles, and even a Nobel Prize winner in F.A. Hayek.

          You can believe to yourself that Austrian economics is a “waste of time.” Go right ahead. We’ll just continue on without the participation of an ignorant moron, and we’ll continue on being right (when we use the Austrian method). You can continue to circlejerk in your own feces filled self-contradictory nonsense.

          • Avram says:

            The thing with predicitions like these is if enough of them are made and they are made all the time, sometimes they will come true. So there is no way to win. If for example Bob Murphy keeps saying “hyper inflation will happen, hyper inflation will happen” and then 50 years later it eventually does he can say “see I knew it all along” except he didn’t, he was just saying things.

            I am not saying this is what happened with the housing bubble stuff, just pointing something out: namely that prediction is a really bad gauge of valid understanding of the underlying mechanics. Another example could be the octopus that predicted all the winners of the previous soccer world cup. A strict positivist easily could have said that the winner clearly depended on the octopus going to a certain box, as it turns out that this was the highest measurable explanatory factor. But anyone with half a mind would know that such a statement was nonsense.

            • Major_Freedom says:

              The thing with predicitions like these is if enough of them are made and they are made all the time, sometimes they will come true.

              What do you mean “predictions like these”?

              You mean binary “good/bad in general predictions, which are always true, or do you mean which sector is booming, why, why it cannot last, etc?

              If for example Bob Murphy keeps saying “hyper inflation will happen, hyper inflation will happen” and then 50 years later it eventually does he can say “see I knew it all along” except he didn’t, he was just saying things.

              How do you know he didn’t know?

              namely that prediction is a really bad gauge of valid understanding of the underlying mechanics.

              Which is why the Austrian economists are explaining the underlying mechanics, and not just making predictions of “generally good” or “generally bad.”

              Another example could be the octopus that predicted all the winners of the previous soccer world cup. A strict positivist easily could have said that the winner clearly depended on the octopus going to a certain box, as it turns out that this was the highest measurable explanatory factor. But anyone with half a mind would know that such a statement was nonsense.

              That’s why Austrians are not positivists.

              • Avram says:

                Why are you assuming I was disagreeing with you? I was just adding more to your point.

            • Major_Freedom says:

              Why are you assuming I was disagreeing with you?

              Huh? I was just responding to your comments. What does “agreeing with you” have anything to do with your comments and what I consider to be right or wrong or uncertain?

    • Avram says:

      Well, economics may or may not be a religous matter for Bob Murphy, but for David S. “science” certainly is!

      • David S. says:

        Science it’s what allowed you to post that comment. Austrian economics has added nothing uniquely good to your life, other than give you some apparently pleasurable ways to waste your time.

        • Major_Freedom says:

          Science it’s what allowed you to post that comment.

          But no positivist “scientific” methodology could have predicted that Avram would have posted that comment.

          Only praxeological reasoning can make sense of what he did, and what he could have done.

          Austrian economics has added nothing uniquely good to your life

          That’s not up for you to decide you tin pot dictator wannabe. It is up to Avram to decide that for himself.

          • Avram says:

            For the record I see nothing wrong with the scientific method or even using it in economics. I just don’t have any weird zeal for it either.

            • Major_Freedom says:

              Depending on what you mean by scientific method, and what the assumptions are, then it may or may nor apply to a field where the subject matter learns and acquires knowledge in an unpredictable way.

              • Avram says:

                Economics is not just a self contained bunch of logic that is not concerned with anything observable at all like e.g. computer science. So you can’t just say “well empiricism has no place in it”

                Note that I am not saying that a purely empirical (or even mostly empirical) approach would be good or anything.

              • Major_Freedom says:

                Economics is not just a self contained bunch of logic that is not concerned with anything observable at all like e.g. computer science.

                Whoever said it was? The axiom that humans act can be established by either the Misesian neoKantian method of thinking about thinking, or the Rothbardian neoAristotelean method of observing other humans and then inferring that they act. The way the axiom is established is important, but it’s actually not relevant to everything that follows from it.

                BTW, computer science is not self-contained logic that is not concerned with anything observable. Computer science requires observations.

                So you can’t just say “well empiricism has no place in it”

                It depends on what you mean by empiricism. If you mean applying the method of observational induction, then no.

    • Scott says:

      Galileo was an arrogant twit. He was right about the planets moving about the sun. He was wrong about many other aspects of planetary motion. He thought that the planets spin because the sun spins, thus if the sun stopped spinning, so would the planets. He thought that the tides were caused by the motions of the earth, like shaking a bowl of water. These ideas naturally looked idiotic to the church hierarchy, who may not have known Newtonian mechanics, but at least had some faint grasp of ideas like inertia.

      He also refused to answer very basic arguments against planetary motion which had stood for centuries and were quite reasonable objections, such as why the stars did not move relative to one another (parallax) if the earth was in motion. He appeared to have no desire to delve into things any deeper than a surface treatment. If he had, he might have been an Isaac Newton. Instead, he chose to be a pompous jerk.

      The catholic church was more than patient with him, and when he stepped outside the bounds of acceptable behavior and betrayed the Pope, who had been a personal friend of his prior to becoming Pope, by making him out to be a fool, they finally stepped in and — horror of horrors! — placed him under house arrest. At the time, he was already quite an old man and had stirred up quite enough trouble for a lifetime, and the Pope was trying to deal with a potential war between Germany and Spain. He did not need Galileo running around calling him an idiot.

      I say he got what he deserved. And no, I’m not a catholic.

      • David S. says:

        Uh, right. Keep posting an opinion like this everywhere. If you’re one of these Austrian-types, it certainly won’t help the image of those who share that economic religion.

        • Major_Freedom says:

          It’s mystical to believe that the standard you profess for the human race somehow does not apply to you.

  3. Tel says:

    I’ve not seen that stack from crude goods down to consumer goods before, but it is very significant, and it just highlights the multi-dimensional structure of the whole price system (and inflation is part of that). That’s probably one of the biggest problems with things like MMT — they attempt to describe the world as a one dimensional flow of money. Even Krugman (not an MMT supporter) still falls into the mental shortcut of seeing all economic activity as a single quantity. The whole concept of “aggregate demand” hides the fundamental question, “demand for what exactly?”

    When you think about it, economies such as China, India, SE Asia, Korea, etc. have brought vast amounts of moderately skilled labour online, but only contributed small additions to the commodity market. To some extent they have also been driving up the demand for consumer goods — but not in proportion to the increased supply. On top of that, technology makes one unit of labour deliver more productivity than it did before, thus multiplying the discrepancy between available labour and demand for labour.

    The logical conclusion is that the balance between labour and commodities must swing towards lower priced labour and higher priced commodities. There is the force of perhaps a billion people pushing, so your inflation stack just reflects the inevitable outcome.

    Inflation in the US economy is basically being used as a mechanism to drive down real wages, drive down the minimum wage and trying to get a head start on unions before they can demand pay rises. Deliberately calculating the CPI lower than day-to-day reality is just a way to buy time. Keeping unemployment high makes unions and minimum wage activists reluctant to make their move.

    I’m swinging towards the belief that Bernanke is a liar, but not a fool; Goldman Sacks does have an incentive to maintain a functioning and competitive US economy (otherwise they would have nowhere to spend all that money).

    The lesson for long term investors is this: either invest in something real (e.g. agricultural land, mining, etc) or invest in something that sits well above the average medium-skilled labour threshold (e.g. high skilled labour, high technology, etc). Needless to say, with the high tech end of things, some ideas must always fail, and some will be very successful. The worst place to invest is places like the automotive manufacturing industry where competition from foreign labour is massive (and other mass-produced consumer goods falling into similar categories).

  4. MamMoTh says:

    Warren Mosler’s analysis on Reuters Insider:

    http://bit.ly/iNV03n

    http://bit.ly/lPA731

  5. David S. says:

    Look, let’s get real for a minute. No one is starving in this country due to rising prices. How many have even had their lives altered in significant ways? You can keep claiming inflation’s high and it’s due to monetary policy, meaning it’s a broad phenomenon, but it really can’t be all that high. Your assumptions are skewing your everyday experience.

    Why not track the items and services you actually buy consistently for a while and see what happens? That’s the only way to measure any inflation rate that’s relevant to you as a consumer. I think you might find a lot of volatility, and a much slower long term trend up than you may think.

    Yes, we’ve had surges in commodity prices here and there, but wages are actually falling by some metrics, which is really as close to a sealed case against anything like high general demand-driven inflation you’ll get. Also, these surges tend not to last long, despite the obvious upward longer term trend, which we would expect with economic recovery anyway.

    • Tel says:

      No one is starving in this country due to rising prices.

      Have you checked the growth in food stamps?

    • Dan says:

      My utilities bills are higher, gas prices much higher, grocery bill much higher, gold and silver I buy is much higher, i’ve had to stock up on the things I use on a daily basis, but other than that life hasn’t changed at all for me.

    • James E. Miller says:

      Um….higher gas prices are definitely affecting my discretionary income. So yeah, it is affecting my life. Not substantially of course but in smaller matters.

    • MamMoTh says:

      Good examples of sticky minds guys. Roddis will understand it one day.

    • Major_Freedom says:

      Look, let’s get real for a minute. No one is starving in this country due to rising prices.

      No, they’re starving where a given marginal quantity of food is relatively high in people’s subjective value scales, such that a rise in the price of food puts more food out of reach of people’s incomes. In relatively poor countries, rising food prices is literally killing people.

      How many have even had their lives altered in significant ways?

      Notice how you try to retain final judgment on what constitutes “significant.” The fact that you admit that there are alterations, which when combined with the fact that the change is a rise in the prices of food, means that the alterations are a lowering standard of living for people who could have bought more food had prices not risen.

      You can keep claiming inflation’s high and it’s due to monetary policy, meaning it’s a broad phenomenon, but it really can’t be all that high.

      “all that” is again you trying to retain final judgment for others.

      Your assumptions are skewing your everyday experience.

      Your traumatized mind is preventing you from understand economics.

      Why not track the items and services you actually buy consistently for a while and see what happens?

      I have. Know what I noticed? The smaller the price inflation, the greater the size reduction. A good that “only” increases by 2% in price is 10% smaller in size.

      I’ve tracked the price of food in my budget, and I can tell you that my weekly budget is buying less and less food, and not just by roughly 2% per year.

      You inflationistas seem to have a fetish for downplaying inflation even if it goes above the magical all powerful 2% number. You attack straw men scare mongerers as if making these images up and then attacking them constitutes proof that inflation is not picking up.

      That’s the only way to measure any inflation rate that’s relevant to you as a consumer. I think you might find a lot of volatility, and a much slower long term trend up than you may think.

      Why is what others think questionable and suspect, but what you think is not?

      Yes, we’ve had surges in commodity prices here and there, but wages are actually falling by some metrics, which is really as close to a sealed case against anything like high general demand-driven inflation you’ll get.

      And which wage metric is that?

      Wages are up or stable by any metric:

      http://research.stlouisfed.org/fred2/series/ECIWAG

      http://research.stlouisfed.org/fred2/series/ECIGVTWAG

      http://research.stlouisfed.org/fred2/series/WASCUR

      http://research.stlouisfed.org/fred2/series/ECIMANWAG

      http://research.stlouisfed.org/fred2/series/ECISRVWAG

      http://research.stlouisfed.org/fred2/series/ECICONWAG

      Also, these surges tend not to last long, despite the obvious upward longer term trend, which we would expect with economic recovery anyway.

      So because the past was one way, then no matter how much money the Fed creates, the same history will reoccur?

      What kind of mystical nonsense are you espousing?

  6. David S. says:

    This is funny:

    http://www.shadowstats.com/alternate_data/money-supply-charts

    I don’t use this site, but I decided to pull it up, given frequent references to it by Austrian pseudo-economic types. While monetary base figures aren’t very relevant anyway, even this nutcase John Williams has the increases in his fantasy metrics at less than horrifying levels, and even shows an outright decline in the M3 SGS as recently as a year ago. Yet, he has a “hyperinflation watch” section on his homepage. lol

    And apparently, he thinks these monetary base measures are pretty important:

    http://www.shadowstats.com/article/money-supply

    So, this is just another demonstration of how the inflation sissies can’t even understand numbers they develop themselves. lmao

    “Math is hard.”

    • Major_Freedom says:

      While monetary base figures aren’t very relevant anyway

      That’s totally false. A greater monetary base enables the banking system to expand more credit. And before you have a conniption of “banks are not reserves constrained!!”, see my reply to that other MMT yahoo AP Lerner here:

      http://consultingbyrpm.com/blog/2011/05/ap-lerner-explains-alleged-crowding-out-chart.html#comment-16227

      Economics is hard, isn’t it?

      • David S. says:

        lol Yeah, you offer no data. lmao But, hey, you guys are anti-scientific.

        You’re just another person to ignore.

        • Major_Freedom says:

          Yeah, you offer no data.

          No data is needed to refute your nonsense. Economics is primarily a science of understanding. Merely observing past data cannot elucidate any economic principles. Observing past data alone is just observing random information. You cannot understand past data unless you have an adequate theoretical framework.

          Austrian economics enables us to establish boundaries and logical limitations.

          But, hey, you guys are anti-scientific.But, hey, you guys are anti-scientific.

          No, you’re anti-scientific because you fail to correctly use logic.

  7. Desolation Jones says:

    Bob, the problem with PPI as a sign of the upcoming inflation palooza that Bernanke will have trouble removing the punch bowl away from is that those number don’t look that particularly impressive if you put them in historical context.

    Intermediate goods are routinely in the 5-10% area without high inflation.
    http://research.stlouisfed.org/fredgraph.png?g=tr

    I know 23% looks like a scary number for crude goods, but it looks pretty average if you compare it to the past 10 years. At the 2008 peak when CPI was at its highest, crude goods reached 50% and right now it’s only a measly 23%.

    http://research.stlouisfed.org/fredgraph.png?g=tq

    Finished goods also get a meh from me.
    http://research.stlouisfed.org/fredgraph.png?g=tt

    An interesting point brought up by Andy Harless is that labor is the most important input for goods and services. Even more so than oil. As long as as wages remained depressed, we won’t be experiencing high inflation.
    http://blog.andyharless.com/2011/03/not-inflation.html

  8. Avram says:

    Here are some tips for cheaper eating form when I was a poorer man:

    Grocery stores are on a cycle for when they need to clear their inventory, and restock. This means that there are predictable times when you can get some things for cheap. For example Pak’n'save used to have magnum ego icecreams for 50 cents every second thursday. Some cycles are daily such as bread. Be one with the cycles.

    Speaking of bread, small bakeries THROW OUT any stock left at some time late at night. Usually around 9pm. Get tomorrow’s breakfast at this time.

    Do not understimate the power of the coupon book, and its corrolary: sometimes it pays to eat out.

    If you live near a fresh fruit and vegetable wholesale market, spend some time trying each seller’s stuff. Usually traders are happy to try and convince you that their apple or mandarin is better than their rival’s.

    If you are agnostic about health claims good or bad, just eat what is cheapest. Frozen pizzas reliably have some of the best hunger fulfilment per dollar no matter where you are or what time of day it is.

    • Desolation Jones says:

      “Speaking of bread, small bakeries THROW OUT any stock left at some time late at night. Usually around 9pm. Get tomorrow’s breakfast at this time.”

      Are you saying that you go dumpster diving or that you ask nicely for free bread?

      • Avram says:

        Well the way to do it without dumpster diving is to catch the dude as they are about to throw the baked goods in the bin, and then just ask if you can have some. The guy throwing it out usually eats a cinammon bun himself, he’s have to be a mega jerk to refuse you.

      • Avram says:

        Alternatively, if you are proud and would lose to much face asking such a thing, consider becoming a baker. The pay is usually decent, and there’s a reason they call 13 a baker’s dozen.

  9. Avram says:

    As someone who has lived through the serbian hyper inflation of the early 90s, here is the one tip that will help you survive if hyper inflation every hits.

    Buy everything with your credit card if possible. EVERYTHING. 20% interest over a years late repayment is nothing compared to a 10000% rise in your salary. I still have a few of these http://farm2.static.flickr.com/1361/1320343536_7cea80cbcb_z.jpg

    There was nothing much to buy in serbia with the official currency at the time, especially durable goods as these were pretty much always traded in deutsch marks, but grocery stores usually accepted credit, especially the government run ones like zdrava hrana.

  10. Desolation Jones says:

    Note: Krugman et al. implicitly mean high inflation when they stuff like “Is inflation coming back? Sure. Right after the Ford Pinto.” and “inflation isn’t a problem.” if that’s where the confusion is coming from.

    • Desolation Jones says:

      Missed a word

      >when they say** stuff

      I should add that they don’t mean there’s no inflation. They just mean there’s no high inflation.

    • Bob Roddis says:

      Don’t they really mean that there isn’t enough present price inflation to dissuade them from demanding further rounds of money dilution and unpayable government debt? That’s the reason they are so insistent upon denying reality.

      Of course, with a relatively fixed and scarce stock of money, if some prices went up, others would have to go down. Only because the Keynesians are trying to solve problems that don’t exist do we even have to endure the funny money regime.

      • MamMoTh says:

        Government debt could be repaid tomorrow, no problem. It’s an interest bearing savings accounts, nothing else.

        Normal people don’t give a shit whether inflation is 3% or 6%. If you are too concerned about it you can always hedge against it.

        • James E. Miller says:

          “Normal people don’t give a shit whether inflation is 3% or 6%.”

          “SHANGHAI (AP) — The police on Thursday clamped down on a demonstration by hundreds of truck drivers upset over rising fees and fuel prices in Shanghai, China’s busiest port city, in the latest display of public resentment over surging inflation.

          The police acted after the drivers blocked a dock in the Pudong district of eastern Shanghai on Wednesday, according to an employee of a logistics company.

          Drivers gathered about 40 trucks on Thursday at a cargo-handling center in the Baoshan district on the city’s northeastern outskirts, but there was no repeat of the violence that broke out on Wednesday, when a trucking company owner said that eight or nine truckers were arrested when they tried to overturn a traffic patrol car.

          China’s leaders have been trying to defuse mounting public frustration over inflation, which reached 5.4 percent in March, a 32-month high, driven substantially by a nearly 12 percent increase in food costs. ”

          http://www.nytimes.com/2011/04/22/world/asia/22shanghai.html

          C’mon dude, you can make all the arguments you want on whether or not high inflation is coming, but saying most “normal” (whatever that means) people don’t care about 3%-6% inflation is untrue in most regards. Obviously not everyone is affected by inflation at the same time, but some are affected more than others due to their circumstances and occupation.

          • MamMoTh says:

            Yes people might get angry if their real wages are lowered by inflation, but not by inflation per se.

            Plenty of countries live with inflation rates higher than 5% without any problem.

        • Bob Roddis says:

          1. The people who are creditors of government debt expect to receive funds that purchase approximately the amount that was invested plus interest. There aren’t enough real goods and services to satisfy all of these creditors. The government will have to pay them off with diluted funny money. They won’t be happy. MMT has not abolished the law of scarcity (although MMTers think it has).

          2. Of course, sophisticated people can attempt to hedge against inflation. The purpose of money dilution (and the ONLY thing it might accomplish) is to surreptitiously steal purchasing power from those holding the existing money for the benefit of those getting the new money and presents opportunities for arbitrage. Thus, the rich and sophisticated are able to steal from the poor and unsophisticated. More fundamentally, money dilution will invariably distort the price, investment and capital structure leading to recessions and depressions.

          3. Austrians and libertarians are concerned first of all with morality. Thus, they are appalled at the program of fraud and theft that is the operational reality of a fiat money system. MMTers, in addition to knowing no basic economics, are either tone deaf to morality or are actively immoral. Hut tax on conquered Africans, anyone?

          • MamMoTh says:

            Sorry, what’s the morality behind squandering stolen gas for its rightful owners thanks to your SWAT teams in order to give meaning to your life?

            If inflation reduces real-wages then you should be happy, that’s what you’ve been advocating.

            MMTers are not tone deaf to morality. Rothbardians are a bunch of hypocrites.

            • Dan says:

              Have you ever heard of Austrian business cycle theory? There are a lot more negative effects to inflation than just lowering real wages.

              • MamMoTh says:

                Yes I have. There are negative effects to everything, inflation, deflation, unemployment, commuting, etc…

            • Bob Roddis says:

              Are you also unaware of our endless opposition to war and the American overseas empire?

              For example:

              http://www.tomwoods.com/books/we-who-dared-to-say-no-to-war/

            • Bob Roddis says:

              Are you also unaware that

              antiwar.com

              is the best, most relentless and consistent antiwar website? And that it is expressly Rothbardian and Austrian? You aren’t going to find any Rothbardian hypocrisy.

              • MamMoTh says:

                Yes, you squander stolen gas. And you are proud of it.
                That’s hypocrite. Or criminal.

  11. SRF says:

    Bob, How about doing a ‘post-mortem’ article explaining why things haven’t turned out as you expected (at least on the timeframe you expected)?

  12. Jones says:

    I think its short sighted to scream inflation when prices are merely rebounding from their large decline over the past few years. This is less a sign of runaway inflation and more of a signal that the world economy is returning to normal after the 08 crisis.

    • Joseph Fetz says:

      Oh, is that why the Fed has been monetizing the debt since late last year? Boy, who would have thought that quantitive easing is an action that is needed when the economy is normalizing. Well, let’s just see what happens when QE2 ends next month, then we can talk about this economy “returning to normal”.

      • Joseph Fetz says:

        Jones, how much do you want to bet that QE3 will not be too far behind after QE2 ends?