Saturday, August 20, 2011

Krugman Blinks Says Price Inflation is Worse than He Expected

Read it for yourself:
OK, someone is going to point out that inflation has run somewhat higher than I predicted; yes, it has.
Krugman then runs a chart showing the spectacular growth in monetary base and writes:
But I think the figure above shows that the outcome has nonetheless been a lot closer to what people like me said would happen than to what you would have expected from reading the WSJ.
The implication being that those who are expecting accelerating price inflation were grounding their argument in the monetary base growth and thus expected very high price inflation.

Some may have, but not EPJ. I have always pointed out that most of the money created by the Fed that showed up as part of the monetary base ended up as excess reserves, which means it wasn't impacting the economy, relative to price inflation or otherwise.

The price inflation that I was expecting was from earlier money printing. It always takes a while to work its way into the system.

Check it out, here's price inflation at the Producer Price Index level since the start of the year. I have posted these numbers before at EPJ, but they deserve another look. My expectation has been that in the second half of this year, price inflation could hit double digit levels, I think we are still likely to get there or very close. The money that has been sitting in excess reserves has slowly started to leak out into the system, as a result money supply (M2) is now growing very fast, at 8.0% plus over the last 13 weeks. That's going to fuel this ascending trend in prices :

Jan 3.6

Feb 5.4

Mar 5.6

Apr 6.8

May 7.3

Jun 7.0

Jul 7.2


  1. See the link below for a 5-year chart of the Producer Price Index for all commodities.

    Producer Price Index: All Commodities

  2. Krugnuts is slowly making himself irrelevant as prediction after prediction is proven wrong. You'd think he would at least be a little embarrassed, if not humbled, at how wrong he was on inflation and perhaps have the intellectual integrity to reexamine his economic views, but sadly like so many other economists he is so committed to his political views more so then he is to intellectualism. Ironically Keynes provides the best description of the condition Krugman suffers from and what is even more ironic is that the defunct economist in Keynes' quote is none other then Keynes himself.

    "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist."

    John Maynard Keynes, 1935
    The General Theory of Employment Interest and Money

  3. Now, here comes an argument for more government management from another angle:

    This one says we should be doing FISCAL stimulus in addition to monetary, because we're in a deflationary environment.

    A managed deflation (ha).

    Like managed globalization, managed regime change, and managed stimulus....

  4. First he says QE2 will not increase commodity prices without stimulating demand, then he says the effect of all the money creation will not cause inflation, and that deflation is the big threat.

    Hilarious! Sort of like how constanza learned to go against his instinct on seinfeld, maybe we should all read what krugman says and realize that the exact opposite is really the truth.

  5. Space aliens are causing the inflation...Lets prepare for war!!!

    keynesians are just parasitic brats.