About seven years ago, housing was booming, and the stock market was climbing faster than most people could imagine. And seven years ago came a “pop,” a bust that reverberated around the world. Because that’s what bubbles do.
It surprises me every time the Federal Reserve Bank trots out its target inflation number of two percent. It shouldn’t—the bank operates like any other junkie. Growth is its drug.
But what surprises me is that Fed Chief, Janet Yellen thinks the memories of consumers are that short. She referred to inflation as one factor related to the lukewarm labor market at an economic conference Friday in Jackson Hole, Wyoming. In the bank’s estimation, based on the consumer price index calculated by the Bureau of Labor Statistics, inflation is running below its target.
While items like cars and clothing—two items the BLS factors into the CPI—are relatively stable, anyone who buys groceries and gas feels the financial strain when they pay the bill. I don’t calculate inflation on my food whenever I shop, but I can read the receipt. It’s costing more money to buy less food these days.
Factor in the sleight-of-hand tricks Fed critics say the bank is so fond of, and it complicates the inflation picture further. Many will buy ground beef when the price of steak increases, for instance. The substitution method accounts for this swap, but it doesn’t account for the increase in the price of beef overall.
And the ice cream that used to be a half-gallon, but shrank even though the price didn’t change? What inflation? I don’t see any inflation, government officials and bankers say.
The central bank has hijacked the conversation on debt. It’s time we take it back and reverse course before we hit the Great Recession II. Or worse.