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Thursday, June 27, 2013

Inflation is Too Low

Inflation is too low (and unemployment is too high):

Yes, We Have No Inflation, by Binyamin Appelbaum, NY Times: Inflation remained sluggish in May. Prices continued to rise at the slowest pace in at least half a century, up just 1.1 percent over the previous year, the Bureau of Economic Analysis said Thursday. ...

As he goes on to explain:

Slow inflation may sound like a good thing, but it’s not. Particularly not now.


Ben S. Bernanke ... and other Fed officials have shown relatively few signs of concern lately. The Fed’s most recent policy statement, and its economic projections, both released last week, show that Fed officials expect the pace of inflation to increase gradually. ...
“There are a number of transitory factors that may be contributing to the very low inflation rate,” Mr. Bernanke said last week. “For example, the effects of the sequester on medical payments, the fact that nonmarket prices are extraordinarily low right now. So these are some things that we expect to reverse and we expect to see inflation come up a bit. If that doesn’t happen, we will obviously have to take some measures to address that. And we are certainly determined to keep inflation not only — we want to keep inflation near its objective, not only avoiding inflation that’s too high, but we also want to avoid inflation that’s too low.”

If they "want to avoid inflation that’s too low," they should be doing more about it now instead of coming up with reasons, yet again, to wait and see. Why not say, for example, we'll do more now, and if it turns out we overshoot our target a bit due to medical prices going up, "we will obviously have to take some measures to address that."

    Posted by on Thursday, June 27, 2013 at 07:38 AM in Economics, Inflation, Monetary Policy | Permalink  Comments (42)


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