Monday, April 25, 2011

On the Myth of Measurement

I love this graph:

Inflation, which is beneficial in moderation, has climbed closer to healthy levels since the Fed started buying bonds.

In theory (and perhaps in recent practice) a little bit of inflation is fine. However, I dislike the general definition of inflation - that is
a general increase in prices - because prices don't adjust simultaneously or uniformly. I like to think of inflation as a policy-driven reduction in purchasing power. If that is a working definition, no matter what the non-core CPI says, it would seem that there is a lot higher inflation than the Fed is recognizing.

Stimulus by Fed Is Disappointing, Economists Say - NYTimes.com