“I don’t think you have until 2012 before this gets out of control and there’s hyperinflation. It could go past that to 2014, but we’re seeing all sorts of things happening now that are accelerating the inflation process.” Thus spoke economist John Williams in May 2011.
The Consumer Price Index rose 1.6 percent in 2012 and another 1.6 percent in 2013. It has been rising at a somewhat faster clip so far this year, but slower than it was in, say, the first few months of 2008. The Billion Prices Project, which collects a wide range of data from online retailers, gives roughly the same picture as the CPI.
There’s no hyperinflation if you believe the official statistics.
Some people don’t, including Williams. His “Shadow Government Statistics” website argues that the government systematically understates inflation. Some conservatives and libertarians lend credence to his numbers, as Amity Shlaes does at National Review Online today.
Measuring inflation is admittedly tricky. But it’s easier to measure the total amount of goods and services produced and bought, and these output numbers tell a story that is much more consistent with the official version than the “shadow” statistics.
If inflation were as high as these conservatives claim, then the economy would have to be shrinking fast. Williams is willing to bite that bullet: His site would have you believe that the economy has been continuously shrinking since 2005. But if that’s the case, then we also ought to see rapidly rising unemployment. Even he isn’t willing to go that far.
People who think inflation is much higher than officially estimated generally argue that the Federal Reserve is hurting American consumers by raising the prices of food, gas and other necessities. That’s where Shlaes is coming from.
It’s certainly true that a looser monetary policy raises those prices and a tighter one would bring them down. But these policies would have the same effect on the price of labor. It’s the ratio of goods and prices to wages that matters for living standards. There’s no reason to think that the Fed’s policies are doing anything to increase the percentage of household budgets spent on food.
If we want to bring down the price of food relative to wages, we’d be better off looking at our agricultural policies than at our monetary policy. And we’d be better off, as well, if we stopped paying attention to statistical cranks.
[Cross-posted at Bloomberg View]