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Chairman Bernanke Told Us So
The December estimates brought inflation down to zero. Well, the CPI actually increased one tenth of one percent from December 2007 to December 2008. That's close enough for government work. The core CPI increased 1.8 percent over that period. The PPI for finished goods declined 0.9 percent over the past 12 months. Furthermore, the momentum in both consumer and producer prices is strongly down, not up.
These numbers vindicate Chairman Bernanke's priority over the past year of dealing with the financial crisis and expecting it and the inevitable slowdown in the economy to reduce inflation without a tightening of monetary policy, as some economists and policymakers had urged.
Bernanke's battle to thaw the credit markets has not been won yet, but it wouldn't be nearly as close as it is had he tightened monetary policy prematurely because of concern about an inflation that was likely to take care of itself. Whether it was clairvoyance or luck, I'll take it.
2 Responses to “Collapsing Inflation”
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February 7th, 2009 at 7:19 pm
Bob,
Interesting observation. Despite an expansionist monetary policy, now to be followed by massive fiscal stimulus, inflation isn’t a problem. My guess is that it won’t be a problem anytime soon. Most folks with short memories may even begin looking forward to the good old days when inflation finally arrives.
We can probably count on big deficits over the next few years. The question then will be whether we can grow our economy enough to begin paying for it.
Dan
February 15th, 2009 at 3:41 pm
My question from February 13th, 2009 still applies:
You said, “The trick will be winding it down.”
There is a tsunami of refinancing now. Most are getting ‘historic low’ fixed rate products.
The Fed has lowered the discount rate to zero.
What happens at some point in the future when the Fed raises the rate to choke inflation?
I see the cycle repeating itself. Only next time it will be worse.
Unless the Fed doesn’t raise rates for at least 15 years.