He argued for such this way:
One thing that becomes obvious when you look at inflation data is that the numbers bounce around a lot, not just from month to month but from year to year. One way to try to get past the noise is to use one or another definition of core inflation, which I think is necessary if you want to catch underlying inflation trends early. But to get a historical picture, it’s good enough just to use longish averages.Since Fed policy can change from day to day, or at least from policy meeting to policy meeting, a three year or four year average is an odd choice. If Fed policy has been relatively stable over a part of that period and only has become more erratic in recent years, you would have to look at a shorter period, say year-over-year inflation rate changes to get a sense as to what is going on . Let's see what has gone on with a Krugman favorite CPI "core inflation" and also CPI "all items" (headline) over recent years:
When you look at the year-over-year change in CPI, it's pretty obvious why Krugman had to reach out to four year smoothing, as you would expect according to Austrian economic theory, when the Fed slowed monetary growth in 2008, (which I warned about: See here, here, here, here, here, here, here and here.) it was followed by the expected dip in prices in 2009 that you would expect with a tight money policy. Bernanke has since then opened up the monetary floodgates in erratic fashion from time to time, and you can see the expected, according to Austrian theory, climb in price inflation.
What is also instructive is that in early 2008, CPI (all items) was soaring well above 4%, could that be why Bernanke slammed the breaks on money printing in mid-2008?
Bottom line: The Fed is not able to keep price inflation in check the way Krugman suggests via his misleading "smoothed" four year chart . Further, all items CPI is flirting with 4% annualized rate again. What's Bernanke going to do from here? Print more and skyrocket price inflation or slow the money printing and crash the economy again? Money manipulation always gets you in this bind. Right now, Bernanke has chosen the printing money route, if he continues on this route, those green and red lines are going to continue to climb and Krugman won't even be able to hide the climb in inflation with his trickster 4 year "smoothed" charts. What is he going to tell the Krugmanites then?