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We Simply Aren’t Seeing Inflation

Posted at 1:15 p.m. on March 15

Mark Thoma breaks down the personal consumption expenditures (PCE) measurement of inflation to demonstrate why we should be wary of drawing broader conclusions about inflation from price increases in any single area.

“Notice how many prices of the goods and services consumed by a typical household fell on a month-to-month basis. You rarely hear people talking about how well they made out due to falling prices… Despite scare stories in the media about all the hidden inflation, it’s just not there.”

“Thus, there’s no reason for the Fed to start raising interest rates to combat this phantom threat. If inflation (or the threat of inflation) does kick-up, we’ll have to balance the costs of higher than expected inflation with the costs of fighting it and prolonging the recovery of output and employment.”

 

1comment
Economy, Financial Markets

Headlines

  • Lorehead

    One might also ask why modest inflation, perhaps the 4% of Reagan’s second term, would be worse than the slow-motion disaster of long-term unemployment.

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