Did Capitalism Kill Inflation? The disappearance of the age-old bogeyman confounds central banke

[applegrove]

Did Capitalism Kill Inflation?

 The disappearance of the age-old bogeyman confounds central bankers and economists.

By Peter Coy at Bloomberg Businessweek

https://www.bloomberg.com/news/articles/2019-04-17/did-capitalism-kill-inflation?utm_content=business&utm_campaign=socialflow-organic&utm_medium=social&utm_source=twitter&cmpid=socialflow-twitter-business

"SNIP....

As Powell acknowledges, persistently low inflation is hard to explain using standard macroeconomic theory. Price pressures were weak in the aftermath of the global financial crisis because there was a lot of slack in the economy, including underutilized factories and workers. What’s surprising now is that even after one of the longest economic expansions in U.S. history, and with the unemployment rate hovering around half-century lows, inflation is still subdued. The Fed has repeatedly missed the target it set in January 2012 of 2 percent annual change in the price index for personal consumption expenditures. Once you strip out volatile food and energy prices, inflation by that measure has reached 2 percent just one month (July 2018) in the past seven years.

As recently as January, Powell was declaring that the economy seemed strong enough to sustain two quarter-point interest-rate increases in 2019, on top of the four the Fed orchestrated last year. But inflation has again come in below the Fed’s expectations, and both 2019 rate hikes have been erased from the median forecast of the bank’s policymakers.

While five-digit, Venezuelan-grade inflation is destructive, a little bit greases the wheels of commerce. It makes it easier for companies to give stealth pay cuts to underperformers, because keeping their pay flat is tantamount to a reduction in real wages. Some inflation is also useful to central banks because it helps them fight recessions. To spur borrowing, they like to cut their policy rates to well below the rate of inflation. But they have no room to do so if the rate is barely above zero. A surprise decline in inflation also punishes borrowers by making their debts more burdensome.

So who, or what, slayed inflation? There’s increasing evidence that the killer wasn’t the Fed or the European Central Bank or the Bank of Japan, even though the central bankers have tended to believe in Milton Friedman’s dictum that inflation is “always and everywhere a monetary phenomenon.” Researchers are finding that low inflation is in large part a consequence of globalization or automation or deunionization—or a combination of all three—which undermine workers’ power to bargain for higher wages.



.....SNIP"

[democratisphere]

1. When mainstay food and energy are removed from the equation,

the inflation number is doctored BS. The widely reported employment numbers are hatched from the same rigged crap.

[Drahthaardogs]

2. Don't forget wage deflation.

Old money HATES inflation; it makes the riches they didn't work for worth less. They have been fighting hard for 20 years keep inflation down.

[democratisphere]

3. The value of a dollar ain't.

The millionaires became billionaires while their actual net value remained the same.

[riverine]

5. Food and energy are not in an inflationary cycle at all.

Oil is $65/bbl - half of its 2008 peak. Natgas is low, coal is low, etc.

Dairy and grain are well off their highs. Corn, wheat, rice, etc are all low.

Milk is only $3 gallon (and is price supported like sugar)

Inflation has not hit food/energy.

[democratisphere]

6. The grocery stores I go to sure didn't get your no inflation memo.

Prices have and continue to rise.

[riverine]

7. If you buy food in small packages you are getting ripped off

that isn't inflation.

That is merchandising.

[democratisphere]

9. That's household inflation, the only kind that is real and matters.

Playing with the numbers and definitions is typical of our very corrupt government to achieve their manipulated end.

[riverine]

14. No one is playing with the numbers

That is what wingnuts accused the Obama BLS of doing when the UE numbers kept improving every month since 2010.

[democratisphere]

15. Numbers are touted with much fanfare one month only to be

revised the following month, often downward.

[Nay]

10. Not right now they aren't -- but they were for quite a few years. And some food prices

have become, and stayed, quite high. Housing prices are quite high in areas where there are jobs.

But, IMHO, the reason there is no inflation is that there are few consumers chasing goods with their money because they don't HAVE any money just lying around. From boomers who lost half their retirement $$ in 2008 to kids with outsize student loans to people working 3 part-time jobs to millennials who just don't want so much stuff to new workers who are working for non-union wages, they have tightened up their budgets permanently because they are basically living paycheck to paycheck already.

[marybourg]

4. Right. Once you strip out the traditional

drivers of inflation, food and energy . . .

[BSdetect]

8. Inflation does exist. Just compare your last pay rise (if any) to your food shopping costs

Or look at the rate banks pay for your savings then subtract tax and see your cash is actually declining in value.

[riverine]

11. The real answer to this inflation question is that the Federal Reserve has done an excellent job

on its two mandates (price stability being one of them) through Bernanke, Yellen, and Powell.

Now President Numbnuts wants his minions on the Board and all that could go to hell.

[Wounded Bear]

12. But they ignored the second mandate...

the one that addresses wages and incomes.

And yes, Trump's nominees would probably finally initiate the 2d Great Depression they were so sad that we avoided in 2008.

[riverine]

13. No, the second mandate is maximum employment

"promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates"

UE is very low thanks to Obama's actions during the Great Recession.

30 year mortgages are very low.

the Fed hit it out of the park (for now)