Tuesday, June 28, 2011

Krugman Goes Global with His Deflation View

Since Paul Krugman has been so on target with his deflation expectations here in the United States, he has taken his view global and tells us that the price inflation in the U.K. is also temporary.

Krugman for the record:
The story so far: Britain is currently experiencing relatively high headline inflation, more than 4 percent over the previous year. And so there are demands that the BoE tighten. Yet the bulk of the rise in inflation clearly represents temporary or one-time factors: a rise in value-added taxes as temporary breaks introduced during the recession expired, commodity prices, and the once-off effects of the fall in the value of the pound against the euro...

What we can hope for is that the BoE stays the course; and when inflation in the UK drops sharply, as it almost surely will, that will be an object lesson in the folly of always making policy as if it were 1979.

For newcomers to EPJ, who may not be aware of my view of Krugman's ability to understand inflation, please note I am writing with tongue in cheek when I write of Krugman's ability as an inflation forecaster. As even CPI data shows prive inflation is accelerating in the U.S., but the last comment from Krugman on US climbing prices was that he expects deflation.

1 comment:

  1. So is Krugman hoping that, with this "object lesson in the folly of always making policy as if it were 1979," everyone will flock to his view that policy be made as if it were 1929?