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US Inflation Update – OpEd

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Conventional wisdom today is that the threat of inflation is low, despite the Fed’s easy money policy, and notwithstanding some economists in the minority (I’m in that minority) who see the Fed’s easy money policy as laying the groundwork for inflation. The March Consumer Price Index (CPI) numbers were recently released, so let’s see what they have to say.

One way to evaluate inflation is to compare it to the Fed’s two percent target rate. Using their own goal as a benchmark, how are they doing? Year over year, from March 2011 to March 2012 the inflation rate was 2.7 percent, well above the Fed’s target, but lower than the 3.2 percent rate of inflation for the year of 2011. This makes it appear that inflation is declining, but the annual numbers are misleading because there was fairly rapid inflation early in 2011, followed by level prices (as measured by the CPI) later in the year.

For the first three months of 2012 prices have risen at an annual rate of 6.6 percent, so we appear to be on track for higher inflation. Looked at another way, prices have risen 1.65 percent in the first three months of 2012, so if the Fed is to hit its annual target for the entire year, the CPI can only rise another 0.35 percent in the next nine months. We can be pretty sure that won’t happen.

One reason Mr. Bernanke gave for announcing the two percent inflation target in January was to reduce uncertainty and anchor expectations about future inflation rates. But if the Fed is unable to meet that target — and it seemed to me at the time they would not — then by year-end the announced target will create more uncertainty and reduce the Fed’s credibility. The recently-released March inflation numbers point toward an annual inflation rate well above the Fed’s target.

Randall G. Holcombe

Randall G. Holcombe

Randall G. Holcombe is Research Fellow at The Independent Institute, DeVoe Moore Professor of Economics at Florida State University, past President of the Public Choice Society, and past President of the Society for the Development of Austrian Economics. He received his Ph.D. in economics from Virginia Tech, and has taught at Texas A&M University and Auburn University. Dr. Holcombe is also Senior Fellow at the James Madison Institute and was a member of the Florida Governor’s Council of Economic Advisors.

3 thoughts on “US Inflation Update – OpEd

  • Avatar
    April 18, 2012 at 12:15 pm
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    “Fictitious capital” is what all this paper, smoke, and electronic flashes is, in an amount some twenty (Le Monde Diplomatique estimates it at 50) times the REAL gross WORLD product.

    All of the above is the product of fraudulent bankster tricks; there is not one farthing of REAL value in any of the deficits, bonds, bills, exchanges, swaps or the latest swindle, quantitive easing”.

    Now the International Monetary Fascists (IMF) and the Fed are hoping to download all of this on to the backs of the 99% who are the REAL creators of VALUE that they add to nature’s gifts and present humanity with REAL wealth.

    “Bailouts” of “sovereign debt” to be serviced by an “austerity” imposed upon entrepreneur led labour who create THE VALUE but had NO hand in creating the fraudulent “fictitious capital” is the dream of the 1%.

    I suspect and Hope that it will lead instead to the Dollar, the Euro, and the Pound going the way of the 1920s German Mark.

    Perhapd this time it will signal the end of the “Capitalist Epoch” and after some sharp but hopefully brief Economic misery will result in a NEW collaborative society where the common need is put ahead of 1% greed.

    Indeed, survival on this small planet depends on an end to the wasteful glorification of individual greed ahead of sensible use of finite resources for the betterment of all!

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  • Avatar
    April 18, 2012 at 12:49 pm
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    The biggest problem politicians have in Washington DC today is convincing people what they are actually there for, or have even been.
    When you watch how about 47 previous recessions were handled as an exchange of property and who resulted in gaining from the losses traditionally…it opens up your eyes to look at some people that have apparently never learned, how not to lie about an inflationary dollar that people hand around following laws of physics that declare there will be an opposing result…and the possibility for humans ending as brain washed.
    Politicians are today more likely to evidence traits that mentally ill people do…due to the fact that their actions speak loudly … they are.
    Narcissist end appearing that way…always demanding they are above you in status or importance…when none are actually needed…due to we are more likely not to attend the schools that taught them to act like they are crazy…raising their hands and repeating words like they pledge their allegiance to a flag and not something human…exampled by living as the intelligent and being the proof…proficient is a good example that does not need a token coin or dollar for proof.Neither is it illegal to use alternative methods in the uS.
    That means you do not have to recognize even gold as having worth…and more than likely it will end as not worth digging up.

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  • Avatar
    April 19, 2012 at 7:23 am
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    With reference to the above article, isn’t the Core PCE inflation rate (which is currently at 1,9%) the preferred measure for inflation as oppose to the All-items CPI that you mentioned? thanks.

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