Somebody help me out here: Scott Sumner is acting like Ben Bernanke is contradicting himself with current Fed policy, and yet the latest BLS report shows that over the last 12 months, the “core” price inflation rate was 2.2%. (The headline CPI rate year/year was 2.9%, while on the PPI we see that finished goods are up 3.3%, intermediate are up 3.3%, and crude goods are up 0.7% [sic].)
So why couldn’t Bernanke say to Scott Sumner:
What’s your deal? Our target for core CPI is between 1% and 2%. We’ve been saying for a long time now that although unemployment is obviously higher than we’d like, at the same time we are concerned about fueling price inflation. And even though we’ve been scandalously tight in your book, over the last year we’re already above our target for price inflation. Therefore we’re already in stagflation, and you’re just telling us to move to a different point in the ugly tradeoff. OK fine, that’s your opinion, but stop acting like we’re below the efficient frontier or something. Yeah, it’s possible that the market forecasts (or even our official Fed forecasts) a year ago predicted less than 2.2% price inflation, but they were obviously wrong. In practice, we produced more price inflation than we wanted, and so our conservatism panned out.