Thursday, January 15, 2009

Deflation Continues, Bernanke is Shirking

Price stability (or a stable low inflation rate) is Bernanke's only job. Even if you think that Bernanke should dabble in other things (like popping bubbles or promoting full employment), you have to admit that price stability is his main responsibility.

The BLS announced today that producer prices decline for the fifth straight month (they fell almost 2 percent Nov-Dec alone). For Q4, that's a 5.5% decline (quarterly rates). The annual deflation rate Q3-Q4 is 20%. That's Great Depression style.

Remember that the various dollar figures we've heard (eg., that dollar retail sales dropped 2.7 percent Nov-Dec) need to be adjusted for price changes. I expect the CPI deflation to be a bit larger than PPI deflation, so the drop in retail sales volume is not as severe as the dollar drop. Indeed, the November to December change in retail sales VOLUME was likely less than one percent.

[if you are one of those who thinks that Bernanke is permitted to ignore certain price categories such as food and energy, notice how much the inflation rate for non-food-non-energy has dropped in the last six months. Bernanke needs to get to work.]

1 comment:

Amit said...

>> if you are one of those who thinks that Bernanke is permitted to ignore certain price categories such as food and energy, notice how much the inflation rate for non-food non-energy has dropped in the last six months. Bernanke needs to get to work.

And, if you are the one that thinks food and energy should not be ignored, where were you when the central bank (under Alan) kept rates at 1% for way long than was needed... 'Helicopter' Ben has already done his bit (Fed rate at 0%) and a massive quant easing cycle... question is, what more can he do...

AcK