Modeled Behavior sends us to:
Niall Ferguson: May 1, 2011: The Great Inflation of the 2010s: The Fed may deny it, but Americans know that prices are rising. Inflation is back.
“I can’t eat an iPad.” This could go down in history as the line that launched the great inflation of the 2010s. Back in March, the president of the New York Federal Reserve, William Dudley, was trying to explain to the citizens of Queens, N.Y., why they had no cause to worry about inflation. Dudley, a former chief economist at Goldman Sachs, put it this way: “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.” Quick as a flash came a voice from the audience: “I can’t eat an iPad.”…
[I]f we’ve avoided rerunning the 1930s only to end up with a repeat of the 1970s, the public will judge him to have failed. To this, the Fed has a stock response. It points to the all-urban consumer price index (CPI-U) and notes that it was up only 2.7 percent in March relative to the same month a year earlier. Strip out the costs of food and energy, and “core CPI”—the Fed’s preferred measure—is just 1.2 percent. When Google unveils its new index of online prices, it’s likely to tell a similar story. To ordinary Americans, however, it’s not the online price of an iPad that matters; it’s prices of food on the shelf and gasoline at the pump. These, after all, are the costs they encounter most frequently. And with average gas prices hitting $3.88 a gallon last week, filling up is now twice as painful as when President Obama took office….
And the reason the CPI is losing credibility is that, as economist John Williams tirelessly points out, it’s a bogus index. The way inflation is calculated by the Bureau of Labor Statistics has been “improved” 24 times since 1978. If the old methods were still used, the CPI would actually be 10 percent. Yes, folks, double-digit inflation is back. Pretty soon you’ll be able to figure out the real inflation rate just by moving the decimal point in the core CPI one place to the right….
Maybe. Or maybe inflation expectations started shifting when the guy from Goldman—a Marie Antoinette for our times—seemed to say: let them eat iPads!
No. If the "old methods" were still being used, CPI inflation would not be 10%/year. God alone knows where Niall Ferguson got this. God alone knows why he believes it.
Pretty much all components of our price indexes are right now doing pretty much what they did in the decade of the 2000s--when there were no cries from Niall Ferugson at all about how "double-digit inflation is back."
Paul Krugman on inflation conspiracy theories:
Inflation Conspiracy Theories: One response of inflation-fearers to the absence of the inflationary outburst they’ve been waiting for is to reject the numbers, and claim that the BLS is hiding a much higher rate of inflation than the official numbers say. You see that a fair bit in comments, and some credulous mainstream figures (i.e. Niall Ferguson) have also bought into this story. How do we know that it’s wrong?
One answer is that people I know work with the BLS, and they really are doing the best they can. But that won’t convince the skeptics, since I am presumably also part of the conspiracy. Bwahahahaha.
Another answer is that if inflation is much higher than reported, real GDP and real wages must have been plunging in recent years. That’s inconsistent with everything else we see, which corresponds to an economy with slow but positive growth.
But there’s a third answer: we now have price measures calculated independently by people not in the government — in particular, the MIT Billion Prices Project. The BPP collects prices from the internet; this means that it’s not a perfect match for the consumer price index, which includes things such as services that are generally not sold online. But if inflation were much higher (or much lower) than reported, you’d expect to see a big divergence between the independent index and the official stats…. Forty months into the project, the BPP shows a price rise about a third of a percentage point higher than the CPI. That’s around 0.1 percent higher inflation on an annual basis — i.e., essentially nothing.
Sorry, folks, but there’s no grand conspiracy to hide inflation.