Paul Krugman: Subsiding Inflation

[pampango]

http://krugman.blogs.nytimes.com/2011/11/17/subsiding-inflation/

Calculated Risk informs us that key measures of inflation have subsided. Still no hyperinflation by 2010].

To be fair, while the inflationistas have been totally wrong, deflationistas like me haven’t been completely right. Here’s a chart, showing unemployment and core inflation during and after two big recessions; in each case the time series starts at the upper left.



I thought this slump would produce a “clockwise spiral” like the 80s recession, and for that matter like what happened in the 70s (not shown). That is, among other things, what textbook adaptive-expectations Phillips curves say should happen. So I thought we might well be into deflation by this point. Instead, while you can see a clockwise spiral, sort of, if you squint, it has been “scrunched” as if it’s bouncing off a hard surface at or near zero.

And that’s almost surely exactly what has happened. Downward nominal rigidity — the great difficulty of actually cutting wages and many prices — is now obvious. And research into PLOGs — prolonged large output gaps — shows that this is a general phenomenon.

So we’ve learned something about price dynamics at low inflation, and some predictions from people like me have proved somewhat wrong. That said, the world is looking a lot more like what the deflationista/liquidity trap types predicted than what the other side claimed would happen.

[PoliticAverse]

1. "inflationistas have been totally wrong" - I guess Krugman doesn't buy any food. n/t

[rfranklin]

2. Oh, they leave that out of the calculations because its "volatile"

so much so that my wallet burst into flames last time I was at the supermarket.

[pinqy]

4. Food is included in the CPI

I wish people would stop spreading this myth.

There is a special index, "core CPI" that does exclude food and energy, but it's not the main one reported and it is always qualified as being "less food and energy."

[banned from Kos]

5. food prices are down -- unless you're gullible enough to buy overpriced small portions

Krugman is right once again. We need more monetary stimulus -- more Fed action.

Most food prices peaked in 2008 (except coffee and sugar). I remember people in the US hoarding rice and flour.

[applegrove]

3. And workers and union people have been fighting inflation with lower wages for the rich.