Sunday, August 31, 2014

David Ruccio — What is inflation?

What is inflation? = What does "inflation" mean?

Many things, and different things to different people, since it is not an observable but an estimate based on choice of standards of measurement and subject to the limitations of measuring aggregates. There is no such "thing" as inflation, and economists even disagree over its technical definition and measurement.

Professor Ruccio is unimpressed with the official narrative:
My own view, for what it’s worth, is the real rate of inflation for consumer goods is higher than the official rate of 2.2 percent (over the past 12 months), thereby understating the extent to which working people are facing rising prices for the commodities they need to purchase in order to maintain themselves and their families. In addition, most people are receiving wages and salaries that simply are not rising much more, from one year to the next, than the official inflation rate. 
Therefore, it’s not surprising that people are feeling squeezed and find the kinds of economic policies advocated by mainstream economists quite strange—both the call for austerity by conservative economists (based on the idea that galloping inflation is right around the corner) and the call for more inflation (based on the idea that real interest rates should be negative, in order to boost economic activity). Neither policy—abounding as they are in metaphysical subtleties and theological niceties—would help working people who, right now, are facing both rising prices and stagnant incomes.
Then there is the issue of assets "appreciating" (good) but not "inflating" (bad) whereas goods prices are never said to "appreciate" but only "inflate." Disconnect?

Occasional Links & Commentary
What is inflation?
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame


Ryan Harris said...

Can we really disentangle one type of inflation from the others? Seems like the best we can do is speak relatively, like assets rose more quickly than wage-labor for decades. Or that commodities have fallen faster than wages this year.

Even geographical/political pressures are relevant to inflation because in parts of the country, the economy has been expanding continuously for decades while in others... it has been a slow burning deflation.

Roger Erickson said...

The boogey man inflates. He's always getting blown all out of proportion. :)

Must be propaganda on steroids?