Missing The Inflation Forest For The Trees

Central bankers constantly miss the inflationary forest for the trees.  Two of the many ways in which they do this is myopically fixating on consumer prices and dismissing rising prices as a consequence of shortages.  This week’s article discusses how their artificially narrow definition of inflation – limited to consumer prices – allows central banks to remain ignorant of even enormous asset bubbles fueled by their policies.  http://www.the92ers.com/blog/phd-economists-and-central-bankers-missing-inflationary-forest-trees-part-i

This week’s article describes the fixation central banks have with consumer prices when defining inflation.  This fixation is shown in the figure below.  During much of the 1920s, consumer prices were flat.  Ben Bernanke interprets this to mean there couldn’t have been any inflation in the 1920s.  In fact, Ben Bernanke describes the period from Spring 1928 – October 1929, the time when stocks went straight up – as a time where there wasn’t’ the “slightest hint” of inflation. 

Best wishes for this coming week – the last week in September. 

Don’t forget to let me know if you like the article. 

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