Thursday, June 4, 2009

Cases Where Inflation Fears are Warranted

Good column in the Wall St. Journal on why there should not be inflation fears unless...then it goes on to list four reasons why inflation may be a concern sooner rather than later.

Not so long ago, we were warned about the prospect of devastating deflation, a widespread decline in wages and prices. Today, we hear equally dire warnings of an outbreak of inflation. It's like preparing for an epochal drought and suddenly being told, "Never mind! Get ready for a flood of Biblical proportions."


An immediate outbreak of inflation is improbable. Consumer prices in industrialized countries have risen less in the past year (0.6%) than in any 12 months since the Organization for Economic Cooperation and Development began keeping records in 1971. In the U.S., unemployment is at 8.9%, and forecasters see it hovering above 9% into 2011. American industry is operating further from full capacity than at any time since the Fed began keeping track in 1948.


But what would have to happen for inflation to soar above the 2% target that most Fed officials set for their favorite gauge?

It then goes on to list four things that could bring on inflation.

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