Economy > Inflation
July 11, 2022
June 20, 2022
Illustration: Jack Richardson
A Great Inflation Redux? Economists Point to
Prices climbed for years before the runaway
inflation of the 1970s.
Economists see parallels today, but the
differences are just as important.
Published July 8, 2021
Updated Oct. 11, 2021
Shoppers protested high prices
outside a grocery store in Denver in 1974.
The Arab oil embargo of 1973-74 set the
for the oil shortage that later sent gas
Denver Post, via Getty Images
Veterans of Carter-Era Inflation Warn That
Biden Has Few Tools to Tame Prices
President Biden and Democrats face political
as costs keep rising and midterm elections
July 5, 2022 5:00 a.m. ET
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Corpus of news articles
Inflation Slowed in August,
Reflecting a Weak Economy
The New York Times
By CHRISTINE HAUSER
of inflation in the United States slowed slightly in August, when a rise in food
prices was tempered by easing prices for gasoline and automobiles, according to
government statistics released Thursday.
The Labor Department said the Consumer Price Index rose 0.4 percent last month,
a slight deceleration compared with the 0.5 percent rise in July. The index,
although it reflects just one month of data, is a closely watched indicator that
guides analysts in assessing the economy. Other reports released Thursday showed
weakness in the jobs market and an uncertain outlook for manufacturing.
“The story is very much the same: that economic growth is slow,” said Kurt J.
Rankin, economist for PNC Bank, about the day’s data.
The inflation figures for August reflected the volatility in prices for items
such as food and energy. Prices for gasoline moderated, with a 1.9 percent rise
in August after a 4.7 percent jump in July. Food prices rose 0.5 percent
compared with 0.4 percent in July.
When those components were stripped from the index, the core C.P.I. showed that
prices rose in August at the same rate as in July, 0.2 percent. That was in line
with analysts’ forecasts in a survey compiled by Bloomberg News.
On a year-over-year basis, the core C.P.I. was up 2 percent in August compared
with 1.8 percent in July.
Paul Ballew, a former Federal Reserve economist and now chief economist at
Nationwide, said that the August C.P.I. number was consistent with expectations
set earlier by such things as automobile prices, which were basically flat in
“Those pockets of weakness were in areas already expected and known,” he said.
Of more importance to investors were events in the European debt crisis and
speculation as to what Federal Reserve policy makers would say after a meeting
next week, Mr. Ballew said. Although the chairman of the Fed, Ben S. Bernanke,
has given no sign that there would be fresh stimulus measures, market watchers
were weighing the possibility of any measures that would promote the economic
recovery in the United States.
With the year-over-year core C.P.I. at 2 percent, it was bumping up against the
top limit of the Fed’s unofficial target rate. But the Fed also relies on
another closely watched measure of inflation, the price index for personal
consumption expenditures, which was up 1.6 percent in the 12 months that ended
in July, the latest government data shows.
“It definitely gives him room under the ceiling, if they want to ease policy,”
said Kevin Logan, senior economist at HSBC. One such move would be for the Fed
to shift bonds in its portfolio to bring down longer-term interest rates. But
the central bank cannot raise rates, Mr. Rankin of PNC Bank said, because it
would slow economic activity.
In addition, the latest figures show that inflation is set to outpace wage
growth, which would be a “significant blow” to potential economic growth because
70 percent of the economy is based on consumer spending, Mr. Rankin said.
“Even those with jobs are not able to put that money back into the economy in a
way that would create jobs,” he said. “Now we are getting to the point with this
inflation number, even those with jobs are less capable of driving economic
Steve Blitz, the senior economist for ITG Investment Research, also said that
the latest data did not add any impetus to notions that the Fed would respond
with policy action at its meeting on Sept. 20-21.
“I think because of the headline number and all of the conservative politics
behind it, this certainly does not give Bernanke any cover towards doing
anything big,” Mr. Blitz said. “The only thing that is going to give him the
cover is what is going on in Europe.”
Mr. Blitz said the C.P.I. data reflected more of a shift in prices rather than
inflation, because there was no accompanying rise in wages, and some elements of
the data suggest the possibility of future economic activity in specific sectors
as capital is directed more efficiently.
For example, rents are a factor pushing the index higher, Mr. Blitz said, but
that could be positive for the economy if it continues because it can spur
construction in multifamily homes and rental housing.
In addition, a weaker dollar is also pushing up the C.P.I., which means imported
goods are more expensive. Domestic producers might see an opening to compete
with imported products.
“Here what you have is an interesting mix of price signals that could very well
help growth going forward,” Mr. Blitz said.
A weekly report from the Labor Department showed that for the second consecutive
week, initial claims for jobless benefits rose, increasing by 11,000 in the week
ended Sept. 10 to 428,000. That was up from the previous week’s 417,000, which
was revised up from 414,000.
Economists generally take any level over 400,000 as a continued sign of weakness
in the labor market.
In addition, the Federal Reserve reported that industrial production increased
0.2 percent in August after having advanced 0.9 percent in July.
Total industrial production for August was 3.4 percent above its level of a year
ago, the Fed said.
Inflation Slowed in August, Reflecting a Weak Economy,
Americans to Fed:
prices are too high
Thu Apr 7, 2011
By Daniel Trotta
(Reuters) - On the streets of America, the debate over inflation is over. Prices
are too high and rising too fast, many people say.
"The government says inflation is low, but that's not what I'm seeing at the
grocery story," Jorge Alberto, an 88-year-old retiree in Miami, said walking out
of a supermarket. "My pension is being put to the test."
Policy-makers at the U.S. Federal Reserve largely agree that promoting economic
growth is still more urgent that constraining a nascent pick-up in consumer
They look beyond the volatile fuel and food prices that have pushed up inflation
and focus instead on data showing little if any upward rise in wages, something
they would see as the seed of a sustained and broad-based rise in prices.
"I don't think the Federal Reserve has a clue about us little people," said J.
McKeever, an instructor at the Montessori Institute of Milwaukee.
"I am very frugal, so I watch what I spend. And what I have noticed in recent
months is that I have less money before than I used to, while making the same
amount of money and having to pay for health care," she said.
Across the country, Americans tell of a disconnect between the real economy they
live in and the macroeconomic picture as described by economic indicators.
Consumer prices rose 0.5 percent in February from January, and 2.1 percent over
the previous year but the rates were half that when stripping out food and
"There are no salary increases and you know you have the pressure at work to
cut, but on a personal level everything else keeps going up. You never seem to
be able to catch up," said Paty Peterson, 50, of suburban San Francisco.
Policy-makers at the Fed must weigh how much the perception of inflation might
trigger actual price increases. The worry would be if businesses pushed up
prices to cover their rising costs and workers in turn demanded higher wages to
cover theirs -- which could spark a self-feeding cycle.
Consumers' inflation expectations rose briskly in March, according to the
Thomson Reuters-University of Michigan survey.
U.S. households are facing higher prices for staple products such as Tide
laundry detergent and Hershey chocolate bars as cocoa, sugar, oil, wheat, corn
and other commodity prices climb.
Major consumer products makers have said in recent weeks that they will be
raising prices including Procter & Gamble Co (PG.N: Quote, Profile, Research,
Stock Buzz), which said it would raise laundry detergent prices 4.5 percent in
June. Kimberly-Clark Corp (KMB.N: Quote, Profile, Research, Stock Buzz) is
raising prices on diapers, baby wipes and toilet paper as much as 7 percent.
"My grocery bill is up 30 percent over last year," said Cheryl Holbrook, 47, who
educates her seven children at home in Mobile, Alabama. "We have to pinch every
little penny and make it squeak."
The Fed's hawks, who stress the risks of inflation, have stepped up their
argument that it may be time to wind down the central bank's $2.3 trillion
securities-buying program to stimulate the economy. So far, they have been
out-argued by those who see recovery from the Great Recession as fragile and
still in need of a boost.
The European Central Bank, by contrast, on Thursday raised interest rates for
the first time since 2008 to contain rising prices.
If underlying prices rise, or an inflationary psychology starts to take hold,
the Fed could change course.
A recent Reuters poll found long-term expectations for the food and fuel prices
that have pushed inflation higher in recent month are on the rise.
Consumers meanwhile complain that food and gasoline consume too much of their
income, forcing difficult decisions to stay within budgets.
Eileen Reilly, 72, a retired resident of the Chicago suburb of Geneva, said
higher gasoline and food prices have forced her to drive less, buy a cheaper
food for her dog Lucky, and stop taking pills for a liver condition she declined
"My doctor said I could die if I don't take them," Reilly said, rolling her
eyes. "I told him that I'm 72 and I'll be dead soon as it is. Besides, it was
either the pills or the car and the dog. And I need the car and I love the dog."
Kevin Gray in Miami,
Mark Felsenthal in Washington,
Verna Gates in Birmingham,
Nick Carey in Chicago, Brad Dorfman in Chicago,
John Rondy in Waukesha,
Peter Henderson in San Francisco)
(Writing by Daniel Trotta)
Americans to Fed: prices are too high, R, 7.4.2011,
us-usa-economy-inflation-idUSTRE7367BZ20110407 - broken link
Could Help a Lot
The New York Times
By TYLER COWEN
fiscal stimulus has not yet been a striking success, perhaps it’s time to
consider new monetary remedies for the economy.
That is the argument of Prof. Scott Sumner, an economist at Bentley College in
Waltham, Mass., who is little known outside academic circles but whose views
have been spreading, thanks to his blog, TheMoneyIllusion
Professor Sumner proposes that the Federal Reserve make a firm commitment to
raising expectations of price inflation to 2 to 3 percent annually.
In his view, policy makers in Washington are doing too much with fiscal policy —
overspending and running excess deficits — and not doing enough on the monetary
While his views are controversial, they are based on some assumptions that are
not. It is commonly agreed among economists that deflation brings layoffs and
sluggish investment. Yet, energy price shocks aside, we have been seeing
downward pressure on prices. Futures markets and Treasury Inflation-Protected
Securities — more precisely, the spread between the yield on TIPS and
traditional securities — suggest current expectations that inflation will remain
well under 1 percent. Economists generally agree that this is not ideal, and
Professor Sumner urges the Fed to try especially hard to overcome the
But how would the Fed accomplish this feat? This is where his recommendations
The Fed has already taken some unconventional monetary measures to stimulate the
economy, but they haven’t been entirely effective. Professor Sumner says the
central bank needs to take a different approach: it should make a credible
commitment to spurring and maintaining a higher level of inflation, promising to
use newly created money to buy many kinds of financial assets if necessary. And
it should even pay negative interest on bank reserves, as the Swedish central
bank has started to do. In essence, negative interest rates are a penalty placed
on banks that sit on their money instead of lending it.
Much to the chagrin of Professor Sumner, the Fed has been practicing the
opposite policy recently, by paying positive interest on bank reserves —
essentially, inducing banks to hoard money.
The Fed’s balance sheet need not swell to accomplish these aims. Once people
believe that inflation is coming, they will be willing to spend more money.
In other words, if the Fed announces a sufficient willingness to undergo extreme
measures to create price inflation, it may not actually have to do so. Professor
Sumner’s views differ from the monetarism of Milton Friedman by emphasizing
expectations rather than any particular measure of the money supply.
The Keynesian critique of this remedy is that printing more money won’t
stimulate the economy because uncertainty has put us in a “liquidity trap,”
which means that the new money will be hoarded rather than spent. Professor
Sumner responds that inflating the currency is one step that just about every
government or central bank can take. Even if success is not guaranteed, it seems
that we ought to be trying harder.
Arguably, we can live with 2 or 3 percent inflation, especially if it stems the
drop in employment. Consistently, Professor Sumner argues that the Fed should
have been more aggressive with monetary policy in the summer of 2008, before the
economy started its downward spiral. Somewhat tongue in cheek, he once wrote on
his blog: “Like a broken clock the monetary cranks are right twice a century;
1933, and today.”
It may all sound too simple to be true, but has the status quo been so good as
to silence all doubts? Many advocates expected that the $775 billion allocation
to fiscal stimulus would be followed rapidly by generous funding for health care
and other reforms. But at the moment, the American public, rightly or wrongly,
is blanching at higher government spending and higher taxes. In contrast, a Fed
stance in favor of mild price inflation need not require higher taxes or larger
While these arguments have not won over the economics profession, neither have
they been refuted. Economists like Paul Krugman have suggested that a public Fed
policy favoring 2 or 3 percent price inflation isn’t politically realistic in
today’s environment. Still, mild inflation might still be a better shot than
hoping for a fiscal stimulus that is big enough, rapid enough and ambitious
enough to work.
IF there is a flaw in Professor Sumner’s argument, it is that aggregate demand
doesn’t always drive business recovery. Circa 2007, for reasons of their own
making, various sectors of the economy were in a vulnerable position. These
included real estate, the automobile industry and retail sales. Higher price
inflation would not have solved their problems, which stemmed from basically
flawed business models that depended on rampant credit. Still, a different Fed
stance might have limited the secondary fallout from the financial crisis.
Of course, there’s a risk that inflation could get out of hand and rise above 2
or 3 percent. That said, the Fed has battled inflation successfully in the past,
and could do so again if necessary.
Professor Sumner has been working for 20 years on what he hopes will be a
definitive economic history of the Great Depression. In this manuscript,
tentatively titled “The Midas Curse: Gold, Wages, and the Great Depression,” he
argues that Sweden in the 1930s made a credible commitment to expansionary
monetary policy and had a milder depression as a result.
Professor Sumner’s proposals may not be public policy now. But if there is one
thing economists should know, it is that we should not underestimate the power
of an idea.
Tyler Cowen is
a professor of economics
at George Mason University.
How a Little Inflation Could Help a Lot, NYT, 1.8.2009,
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