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Wednesday, February 24, 2010

Everything Old Is New Again

So for the last year - at least - you've been telling your friends that Stagflation is coming back. All that funny money is going to come back and haunt us. But the CPI has stayed as flat as Saskatchewan the whole time. Now, as I pointed out earlier, CPI doesn't take into account changes in asset prices, such as housing and stocks, thus it often only picks up inflationary crises long after they're underway. Well, inflation has just appeared in the British CPI numbers. What happens in Mother England, soon happens in her former colonies:

Crack open the champagne. Inflation is back up to 3.5 per cent. The reason an economist might consider this a cause for celebration is that by common agreement inflation is a lesser evil than deflation, and a year ago, it was the latter which was considered the bigger risk.

There’s not much sign of deflation in these latest numbers. In his letter of explanation to the Chancellor, the Governor of the Bank of England, Mervyn King, blames the overshoot on three factors – the restoration of the standard rate of VAT to 17.5 per cent, the rise in oil prices, and the depreciation in sterling. I’m not sure that provides much of an excuse for missing the inflation target. The next thing is the Governor will be saying that food prices and wages lie outside the Bank’s control too, so don’t blame the Bank when they start rising. The Bank seems perfectly content to take the credit for low prices, but won’t accept any of the blame when inflation spirals out of control.

Posted by Richard Anderson on February 24, 2010 | Permalink

Comments

Demand for money is high right now ... eventually that will change and prices of goods and services will go up. Meanwhile, gold, copper, oil, zinc, etc. are all performing as Austrian economic theory states they should. The only thing that can save us long term is a massive hike in interest rates (i.e. deflating the money supply). Fat chance of that happening.

Posted by: Charles | 2010-02-24 8:01:06 AM



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