Why isn't there more inflation?

UPDATED: Saturday, September 8, 2012 21:02
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Wednesday, September 5, 2012 7:05 AM


Gettin' old, but still a hippie at heart...


The economy of the past three years has puzzled experts and policy makers in all sorts of ways, but the greatest mystery has been the recent decline in the rate of inflation. That may not seem remarkable in a stagnant economy, except that all the major economic theories suggest that prices should now be rising at a fast clip. Like the dog that didn’t bark – which provided the crucial clue for Sherlock Holmes in the story Silver Blaze – the current absence of significant inflation provides a tipoff to what is really happening in today’s economy.

On a very simple level, inflation occurs when there is more money in circulation than there are things to buy. A big Federal deficit can increase the money supply, because it means either that the government is spending more or that tax cuts are boosting individuals’ disposable income. Low interest rates can also expand the money in circulation because they signal that the Federal Reserve is making it easier and cheaper for banks to lend. And an even more potent way for the Fed to intervene is through so-called quantitative easing – i.e., buying government bonds and effectively creating additional money out of nothing.

What’s most striking today is that all three of these factors are now at extremes that should be fanning the flames of inflation. Deficits of more than a trillion dollars a year are the highest in history. At close to zero, short-term interest rates are at their lowest level in more than 30 years. And the Fed’s monetary base has been expanding at an unprecedented rate. The remarkable thing is that none of this is translating into serious inflation. Over the past three years, some volatile prices, such as those for food and gasoline, have indeed gone up. But there still haven’t been sustained widespread price increases throughout the economy.

Generally speaking, inflation becomes dangerous when it exceeds 3%. Last year, the rate did begin to pick up and reached a disturbing 3.9% in September. But since then, instead of getting worse, inflation has actually slowed down again to a paltry 1.4%. The explanation is that all the money in the world won’t push up prices unless people are willing and able to spend it. So the dog that didn’t bark in this story is the money that didn’t get spent.

Because the 2007-09 recession hit the financial sector especially hard, banks are holding back on lending as they rebuild their capital. Many consumers are over-indebted and are trying to pay down their balances instead of borrowing more. In some cases, their credit lines are being cut or they are having a hard time getting additional credit. Depressed housing prices have not only slowed the turnover of real estate, but have also removed one of the cheapest ways of borrowing – home-equity loans. Finally, although companies are piling up huge amounts of cash, they have no reason to spend aggressively on expansion and new ventures when consumer demand is depressed and the financial and political outlook remains so uncertain.

More stimulus, by itself, won’t be able to get the economy moving again. The government can run a huge deficit, the Fed can hold interest rates down, and Fed Chairman Ben Bernanke can pump money into the system with a third round of quantitative easing, but that won’t necessarily make the economy speed up – at least not right away. On the other hand, the fiscal cliff, with its spending cuts and tax increases, could depress the economy further. So could a crisis in the euro zone that delivers a shock to the global banking system or a jump in oil prices induced by war in the Middle East.

What the economy really needs for a full recovery is time and stability. Once U.S. banks have cleaned house and rebuilt their balance sheets, once consumers have their debt under control and their home values have stopped falling, and once companies have to start putting their cash to work, spending will pick up. When that tipping point occurs, real estate prices will likely stabilize and then begin to rise again. The price of oil is also likely to start moving higher.

No one can accurately predict the timing of any of these changes, of course. And it’s worth keeping in mind that much of this may be beyond anyone’s control. Policymakers can put more money into circulation, but they can’t actually make it circulate. And they have even less influence on the euro zone or on Iran. The current stagnation may simply have to run its course. But once it does and the economy really begins to rebound, it could well be accompanied by a surprisingly fast resurgence of inflation.

I found that to be close to my own opinion of what's happening and what will or can happen. Given the plan Romney/Ryan has for what they would do if they get in office, it seems to me that would hurt, far more than help, a continuing recovery. On the other hand, after reading this and other articles, I've lost my belief that further stimulus would be as effective as I'd wish. Maybe we DO just have to wait it out, with the government having little ability to help the situation. That's a depressing thought, but a better one than what would happen if the GOP got in charge.


Wednesday, September 5, 2012 7:12 AM


Food and fuel are up, especially fuel. The govt stopped counting the way they used to. Less counting of things like gasoline, more counting of things like flat screen plasma tvs and other luxury tech goods.

The business folks figured this out a couple years back before the 2010 elections. It's why inflation is low, but the stuff you buy every week is going up all the time.


Hero...must be right on all of this. ALL of the rest of us are wrong. Chrisisall, 2012


Wednesday, September 5, 2012 7:38 AM



Originally posted by Hero:
Food and fuel are up, especially fuel.

Exactly what I was going to post. Those 2 items, critical in the real world, are not included in the statistical index.


Wednesday, September 5, 2012 8:39 AM


Funny you should mention credit card debt. A couple of years back my credit limit was cut. Just a couple of months ago I received an increase. Food and transportation are higher ($104 for a monthly unlimited Metro Card, a year ago it was $89). The transportation authority spends billions but little or no improvement to our rail system, they actually cut services and still there's talk of another increase. Go figure!



Thursday, September 6, 2012 4:56 AM


I was wondering why I keep hearing "inflation is low" when my dollar at the grocery store doesn't go as far as it did. I think food manufacturers have been sneaky, both by increasing their prices and decreasing the quantity of product per package. Food and fuel are the things that matter -- you can choose not to buy luxury goods if you don't like the price (though, as has been noted, the prices have been good). ETA: Just read the article -- it agrees that food and gas prices have gone up but notes that that hasn't affected the inflation rate. Most of the article seems to make sense to me... It seems like decreased consumer spending is the reason for low inflation right now. A lot of people are cautious in these economic times. Maybe in a few years, inflation will catch up as people lose their cautiousness and start spending beyond their means again and bank lending regulations loosen up again...


Thursday, September 6, 2012 7:54 AM


Gettin' old, but still a hippie at heart...

Mala, "decreasing the quantity of product per package" is something I've noticed too. It sickens me to see these ads for the new chocolate with "air bubbles" in it, as it's just obviously a way to put less chocolate in! They're finding many ways to decrease the quantity of the product so it doesn't look like they've upped the price.

(By the way, if nobody else has said it, it's lovely to see you back!)


Thursday, September 6, 2012 8:56 AM



Originally posted by Niki2:
Mala, "decreasing the quantity of product per package" is something I've noticed too. It sickens me to see these ads for the new chocolate with "air bubbles" in it, as it's just obviously a way to put less chocolate in! They're finding many ways to decrease the quantity of the product so it doesn't look like they've upped the price.

Ayep, right along with blatant lies, which come across to me as "NEW AND IMPROVED, MORE PACKAGING, LESS PRODUCT!" and such and so forth, right along with my bitter pet peeve about packages with bumps and ridges which make it hard to get the goddamn product out and encourage waste - coffee cans with that stupid extra lip for example, notice how damn HARD it is to get that last teaspoon or so of coffee out of the damned thing ?

And my bane, my nemesis, the infamous grocery shrink ray.

See, I know HOW to shop competitively, and I not only actually read the ingrediants list (which is why I know Meijers store brand "Organic" soups have *more* MSG and garbage in em than "Regular" ones...) but also calculate the price in respect to actual product, and being a suspicious, cynical, grudge holding type - don't take well to that kinda bullshit, and will blacklist products for it, like a certain company which just changed their chicken nugget package, which CLAIMS less packaging and more product, which is laughable to me since their new package actually contains 8 ounces LESS product.

Not a big fan of legislation at any time, I do think the Truth-in-Labelling laws need to be updated to close some of the loopholes, workarounds and dodges - and given more teeth.
As you can tell, this is a serious peeve of mine, it is.



Thursday, September 6, 2012 9:30 AM


Gettin' old, but still a hippie at heart...

It's a peeve of mine, too, Frem. But a bigger pet peeve for me is the way things are packaged--massively--in non-recyclable plastic. I try to buy conscientiously, but in many cases it's impossible, since all the products come in those stupid plastic. We share another pet peeve when it comes to opening merchandise, which again goes back to my previous statement. Not only are so many thing (especially in electronics!) packaged in non-recyclable plastic, but some of them seem deliberately manufactured to keep the buyer OUT! Much cussing here when I have to struggle with that shit, believe me!


Thursday, September 6, 2012 4:23 PM


Ayep, even MORE ironic when the item contained within that superheavyduty, non-recyclable, and resource intensive armor plate is a fucking low energy flourescent bulb which the customer despite all attempts otherwise winds up damaging past use trying to get it out of the blasted thing, and injures themselves besides - so they wind up with stitches, no high efficiency lightbulb, and the whole shebang including the bulb which contains mercury and should NOT have been pitched in common trash (resident didn't know any better) winds up in a landfill somewhere...
Oh, and did I mention they ordered it ONLINE, which means the excuse of security packaging utterly FAILS cause money changed hands before the product even shipped ?

And at that point you just wanna beat someone to death with a wiffle bat.
Not to mention said packaging is needlessly expensive as well, but it's not like the corporations care cause they push the cost of their asinine greed and commercial laziness onto the customer, as usual.
Read this ONLY IF you hate clamshell packaging that can't be opened

Thankfully Amazon is *NOT* as downright maliciously STUPID as other online outlets and figured out that if the money has changed hands before shipment, there's no NEED for this crap.

I know this for sure, if it's readily apparent that I'm going to need a goddamn chainsaw to get the product out of the packaging, imma see what your competition offers!



Thursday, September 6, 2012 8:27 PM


Flying on duct tape and a damaged registry.

A quick stab at this...

Low inflation? HA! Food, anybody? There's been annual double-digit heath care inflation for at least a decade! Oh, yeah, and that energy thing. Oh, yeah, and with the 10-year T-note below inflation, the economy as a whole is making negative interest.

When this whole thing started, I predicted late 70s-era inflation as soon as the economy TRULY turned around. (Hasn't happened yet. Not even close. Just stopped going down.) I still believe this to be true. There are two ways to pay back a "loan": Actually pay it back, or inflation.

And, by the way, all the goodies (flat-screen TVs, et al.) are deflationary anyway, regardless of the state of the economy. For example, in 1998, $3k got you a smoking hot computer. Today, $3k gets you a smoking hot computer that makes the one from 1998 look like an adding machine. Does anybody remember when RAM was $38 per megabyte? Little cheaper than that now, huh! The first flat-screen TV I ever saw was $14k. All 42" of it. Little cheaper now, eh?

Inflation is low, unless you need health care, gas in your car, food, or shelter. (Houses are cheap. Too bad more people can or will buy them. Rent, however, is going nuts.)

"Whatever is wrong with you is so right for me." -- Marillion.


Thursday, September 6, 2012 10:14 PM



SERIOUSLY, every time I see one of these, or comparable "pricing" it makes me wanna grab the dumbshit responsible, drag them into the most public open area of the store, and BEAT THEM SENSELESS while yelling "What the fuck is WRONG with you?!" in retaliation for just, I dunno, lowering the intelligence of the entire human species with the assumption required to do something that dickheaded, perhaps.

And it's not just Worstbuy which does this, it's extremely pervasive and prevalent to the point where I've yanked the damn rack tags and stormed up to the CSR counter and started a row about their math skills while accusing them of fraud.

Lets just say its also a really, really bad idea to lure me into your store with a bait and switch, or a phony price offer you have no intention of honoring, cause that'll cost you more than it's ever worth.



Friday, September 7, 2012 2:12 PM


I think its to do with how inflation is calculated. It may be that your food items are up, but housing costs are down etc.

I've noticed some interesting things over the past twenty years, essential items like food, petrol, housing, utilities are all way up. It's harder to find an affordable roof and put food on the table and pay the bills. But luxury goods are way more affordable. Cars, technology, whitegoods, furniture and all pretty cheap. As is plane travel. Despite soaring fuel costs, it roughly costs the same to buy a ticket to Europe as it did 30 years ago. Work that one out.

It means that life is tough down the lower end of the socio economic end, but the richer you are, the easier it is to play.


Saturday, September 8, 2012 10:44 AM


Bread and Circuses, it is, without the Bread - and that's a dire mistake to make, you'll see.



Saturday, September 8, 2012 8:17 PM



What the economy really needs for a full recovery is time and stability.
What the economy really needs for a full recovery is to cut $600 billion dollars off our Pentagon budget.

I miss Alan Grayson and his War is Making You Poor Act.


Saturday, September 8, 2012 9:02 PM


Goodbye, kind world (George Monbiot) - In common with all those generations which have contemplated catastrophe, we appear to be incapable of understanding what confronts us.

"Has the BLS removed food or energy prices in its official measure of inflation?

No. The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the "core" CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI."

But the CPI is going down, which is not reflected by experience in real life where it is going up. I wonder if this has to do with housing and dropping real-estate values.






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