Sunday, July 20, 2014

Paul Krugman: If You Don't Eat, There Is No Price Inflation

And I don't think we should put the plump Krugie into the non-eating group.

Nevertheless, in his latest post, the NYT bard of economics, attempts to dismiss climbing food prices as no big deal. :
[P]eople will point to the price of something that has gone up as evidence that we have lots of inflation.

Not that I think such people can be budged, but it is important to realize that relative prices are always shifting around, and that some prices inevitably go up more than the average. As the figure shows, if you go back to the beginning of the Great Recession, food prices have risen more than the overall CPI (although hyperinflation it isn’t), but car prices have risen more slowly (and high-tech stuff has, of course, gotten much cheaper).

Notice that Krugman calls the prices in this chart "shifting," when in fact there are climbing at different rates. Further, as pointed out here at EPJ, some prices in the technology sector are falling, but that is because of the massive increases in productivity in the sector. In other words, in a non-inflationary world, tech prices would fall even more.

Bottom line: A typical nonsense post from Krugman that does not discuss the factors around different trends in prices. But the one indication that the price inflation is getting more serious is that he as been forced to recognize the accelerating price inflation in the food sector.



  1. Inflation where it matters: Close to 50 percent of Americans indicate spending more on groceries and fuel this summer. Nearly one third indicate more spending on rent and mortgage payments.

    Where inflation matters

    It is interesting to see how people react to a constant feed of distorted information. The message is clear and it is one that is underplaying inflation. The tone set by the Fed is one in which monetary easing should continue to go on because inflation is simply not happening in the real economy. This could not be further from the truth.

    Looking at the Gallup survey, you can find that Americans are spending more on the items that already consume a large part of their budgets:


    Source: Gallup, GS

    The data?

    -Half of Americans indicate they are spending more this year on groceries

    -Over 40 percent indicate they are spending more on gas/fuel

    -Over 35 percent indicate more is being spent on utilities

    -Roughly 35 percent indicate more spending on healthcare

    -Nearly 30 percent indicate spending more on rent/mortgage payments

    Does this seem like a market where inflation is actually muted?

  2. The answer to #2 seems to be a variety of bad news: drought & climate change raising food prices, and conflict in the Middle East raising the costs of food and energy really hurts lower and middle class people; so does rising health care costs. Rising real estate values and rent really hurts lower income people while improving the standing of those with more. But none of these are easy government policy changes; these are real issues (not enough water to grow enough food), not something the Fed did, and either geopolitics or unfortunately long-term trends... luxuries are getting cheaper while necessities get more expensive. We're not going to change our Middle East policies, or waive our hands and not have a drought, because of inflation. Krugman is probably more focused on inflation based on the money supply (things the Fed or federal government can influence), which seems well under control. Tightening the money supply won't get rid of the drought and will reduce housing starts (increasing rent).