We live in the craziest, upside down world you can imagine. In years past at rise in consumer prices threw the markets into a panic, signaling that inflation was rising a getting out of control. But that was then and this is now.
Today the Labor Department said that the consumer price index rose .3% after dropping .8% in December. Voila! The inflation news is now good news. Why is inflation good news? It is good news because it means that we are not deflating. Even Bernake said that we simply cannot have deflation. He stated an inflation goal of 1.5% to 2% for the coming years. You see in this upside world, deflation is when prices fall, and since we don't want that, we now love it when prices rise -- that's inflation.
Some economists say its just a bounce. The numbers show that on a year-to-year basis consumer prices were flat with last month making it the weakest on record since 1955. I guess that we can infer from this that inflation has been rising steadily since 1955. The index rose .1% year on year in December.
The year end drop in inflation was largely due to a drop in energy prices. However, prices were up .1% in January from a year ago.
Harm Bandholz, economist for Unicredit Markets and Investment said that the increase in core inflation is not sustainable. So I guess when all is said and done, pick your poison -- inflation or deflation.
What are your thoughts on this?
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Reader Comments (Page 1 of 1)
2-21-2009 @ 10:36AM
william lindblad said...
Ben spends too much time holed up in his office. We have both conditions and both a just beginning to flex their muscles. The only way he is going to get a 2% figure holding, by the end of Sept. is to use a Madoff style bookkeeping. Given circumstances, with the presses running 24/7 printing money and the prospect of treasury auctions weakening, a 6-8% is more likely.