CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press The Problem of Deflation at the NYT

The Problem of Deflation at the NYT

Print
Wednesday, 22 June 2011 04:34

In discussing the Fed's QE2 program, the NYT tells us that things are much different today than they were a year ago.

"Last year prices were falling; this year, prices are increasing."

Well, sort of. Here's the overall CPI where there is in fact a small drop between April and June, although it is completely reversed by the July increase.

btp-6-22-2011-fig1

Source: Bureau of Labor Statistics.

Of course, if we look at the core CPI which the Fed targets, there is no decline in prices at all in the summer of 2010. In fact, inflation looks pretty much exactly the same in the summer of 2011 as it did in the summer of 2010.

btp-6-22-2011-fig2

Source: Bureau of Labor Statistics.

In other words, what explains the difference in the Fed's behavior is not any obvious difference in inflation or even the growth outlook. (Growth projections were if anything stronger in the summer of 2010 than at present.)

Rather, the most obvious explanation is a difference in politics. There is a growing push against any effort to stimulate the economy, which is noted in the article. It is this change in politics that seems to explain the end of quantitative easing, not any change in the economy.

This article includes a peculiar statement by Mark Zandi, of Moody's Analytics, which attributes the economy's weakness to a loss of confidence. It would have been useful to ask how he thought low confidence was hurting the economy. Consumer spending continues to be very high relative to income and investment in equipment and software is quite strong given the low capacity utilization rates, so it is not obvious what sector of the economy is being constrained by a lack of confidence.

Comments (3)Add Comment
Confidence is Not Relative
written by izzatzo, June 22, 2011 6:35
This article includes a peculiar statement by Mark Zandi, of Moody's Analytics, which attributes the economy's weakness to a loss of confidence.


On the subject of root cause in economics Zandi is confident that confidence is a matter of absolute faith rather than relative faith, therefore one's confidence in one's consumption relative to one's income is irrelevant in light of what Zandi's clients want to hear what they pay for.
...
written by paine, June 22, 2011 10:50
"core "inflation index we jobbled many
might better call it a wage index in padded clothing

wage control under any set of figure obscuring clothing
is always and everywhere plain old vanilla corporate wage control

oil may rumble
bananas may crumble
they're only made of play

but our wage
is here to stay
...
written by peter, June 22, 2011 5:14
The charts would probably present a clearer picture if the inflation rate was shown, rather than the price index.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

Archives