Why Inflation Hasn't Spiraled Out of Control

"Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation."
Warren Buffett, 2009.

As the Federal Reserve double-, triple-, and quadruple-downed on monetary policy starting in 2008, the common-sense response was to predict that booming inflation was right around the corner.

But they warned it would come in 2009, and it didn't. They warned it would come in 2010, and it didn't. The same goes for 2011 and 2012.

The Consumer Price Index has increased at an average annual rate of 1.87% since 2008. That's almost half the average post-World War II rate of change. Privately measured inflation gauges show roughly the same thing.

What happened?

I recently sat down with Hoover Institute economist Russ Roberts. He took a stab at the inflation conundrum. Have a look.

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Read/Post Comments (5) | Recommend This Article (4)

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  • Report this Comment On April 08, 2013, at 1:39 PM, TMFDarwood11 wrote:

    I'm glad to hear that I'm not the only one who has been baffled by this.

    I suspect that when the economy does take off, that things will really pick up and that includes inflation.

    The politicians will have great difficulty dealing with inflation, because they want to win the next election and if things are good, why interfere with a good thing. This was epitomized by the housing bubble, which benefited a large segment of the economy, from manufacturers, to builders to banks, and the "owners" who used housing like a piggy bank, which of course allowed them to borrow and spend that money in the economy!

    "Money is really complicated." Yessir!

  • Report this Comment On April 08, 2013, at 1:39 PM, FearlessTrader wrote:

    Clearly, where all the money is, at the top 1%, cannot drive up domestic inflation. What will drive food/commodity inflation is lack of rain and just more bad weather which is the likely scenario.

  • Report this Comment On April 08, 2013, at 1:40 PM, TMFDarwood11 wrote:

    "Why Inflation Hasn't Spiraled Out of Control" Yet

  • Report this Comment On April 08, 2013, at 3:50 PM, kyleleeh wrote:

    Inflation is too much money chasing after to few goods. Most people only pay attention to the "to much money" part of that equation but in truth there are three criteria for inflation to occur:

    1. too much money

    2. Chasing

    3. too few goods

    We do have to much money right now, but it's not chasing anything, banks have lost their appetite for risky lending and consumers have lost their appetite for debt in general. Also an aging population has cut back on their discretionary spending as they retire, this same thing has kept inflation at bay in Japan for two decades as a aging population consumes less, and saves more, while a young population like India, or Zimbabwe are much more likely to spend and borrow.

    Also we've seen a surge in productivity in the last few years that has done a lot to prevent the "too few goods" from occurring. How much goods and services does the average Zimbabwe worker produce? Much less then the average American, that contributes a lot to inflation. So we end up seeing inflation in things that are becoming short like corn, but deflation in things that become abundant like Natural gas.

    In short, Inflation is more then just too much money.

  • Report this Comment On April 09, 2013, at 9:56 AM, TMFDarwood11 wrote:

    "So we think a better question is: “Why is inflation so high amid elevated levels of unemployment, tight access to credit for households and the ongoing deleveraging?” " - PIMCO

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