May 02, 2011
Washington Post columnist Robert Samuelson is concerned that Federal Reserve Board Chairman Ben Bernanke is insufficiently concerned about inflation. This might seem a strange concern to those of us in the real world. After all, core prices have risen by 1.2 percent over the last year. That’s nearly a full percentage point below the Fed’s target rate.
Low inflation creates serious problems for the economy. It prevents the real interest from being as low as would be desired given the weakness of the economy. (The real interest rate is the nominal interest rate minus the inflation rate. Since the nominal interest rate cannot fall below zero, the inflation rate sets the extent to which the real interest rate can turn negative.) Low inflation also leaves a large debt burden on households who have large debts due to the collapse of the housing bubble. These are the reasons that most economists would like to see a somewhat higher rate of inflation.
However Samuelson argues the opposite, he is concerned that inflation is already too high. He notes the run-up in oil and food prices. Of course these prices are determined in a world market, it is difficult to see how anything Bernanke could do, short of crashing the U.S. economy, could have more than a marginal impact on them.
Samuelson then turns to other prices. He notes rapidly rising airline prices. Samuelson apparently didn’t know that airlines use jet fuel, which is made with oil.
His other example is car prices. He tells readers that:
“Car ‘incentives’ (a.k.a. price discounts) are shrinking — which means prices are rising.”
Yes, and the Bureau of Labor Statistics tells us that car prices have risen 1.6 percent over the last year. Yep, that’s Zimbabwe-style hyperinflation. They don’t call it “Fox on 15th Street” for nothing.
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