Except that periods of low inflation (below the 2% target rate) occur as a natural course of the business cycle. We have to let them occur. But we don't. The moment prices fall below the magical, mystically created 2%, Central Bankers are on the airwaves about pushing loose monetary policy, printing more money and keeping emergency measures in place (for over 6 years now in the US, many more in Japan for all the good it's done either country).
I pulled the data yesterday for 172 categories in the grocery store (all that are tracked by IRI) and out of 172, 121 are rising, 80 of them well over 2%. Of the 50 or so that are falling, this is the first year for many of them falling in a long time. Is that deflation? I don't think so.
Yet central bankers are all over the wire worried about deflation here in the United States, which, for anything other than gas prices, is a joke. One year of falling prices does not constitute deflation, much less any need to put "emergency measures in place".
QE is about pushing asset prices, creating wealth inequality by making the rich, richer, and distorting markets so that if (ever) the accomodative policy is removed, chaos reigns.
Let me know if you want the excel file on food stuffs. You can pm me your email.
Oh, and:
This statement:
The moment prices fall below the magical, mystically created 2%, Central Bankers are on the airwaves about pushing loose monetary policy, printing more money and keeping emergency measures in place...
in particular, is completely out of touch with reality, and what is going on at the moment. It is what one expects from someone whose mind has become fixated on a false reality, and consequently their perceptions become filtered and distorted so as to convince themselves that the reality is what it is not.
What is actually happening is that the U.S. economy is recovering, and in no small part due to the extraordinary actions of the Fed and Treasury. Now that there are signs that the economy is on the mend, albeit slowly, there has been anticipation that the Fed will, before too long, begin, ever so gradually, to tighten.
We were subjected to endless predictions of QE leading to out of control hyperinflation. When it was clear that there would be no hyperinflation, we were subjected to claims that QE had actually accomplished nothing. The absurdity of this assertion is clear. Anyone, other than a lunatic, would presume it is not with the goal of accomplishing nothing that other Central Banks are now following in the Fed's footsteps. Finally, with the U.S. economy on the mend, we are being subjected to ridiculous claims that the Fed has no way to exit without ruining the economy and bankrupting the nation. I suspect we will never hear the end from the Jekyll Island conspiracy nuts, or amateur economists who haven't a clue how the Fed operates and are absolutely convinced that the Fed is nothing but a branch of Chase J.P Morgan.
In anticipation of rising interest rates, the Forex markets have bid up the dollar,
because markets, in the normal course of events, react in anticipation rather than after the fact. The dollar has been strengthening, even though the Fed has not yet begun to tighten. Other central banks have decided to take steps toward QE and monetary easing. The reaction in the Forex markets has further fueled strengthening of the dollar vis a vis other currencies.
A stronger dollar along with weak wages will quite naturally lead to low inflation. That is what we see in the U.S. economy. The Fed has not, however reacted as the poster I have quoted said they do, but on the contrary has adopted a conservative wait and watch approach. They have delayed for the time being any significant tightening, and in the meantime the inflation rate has rebounded some. This is consistent with higher employment and further economic recovery. The Fed, as always, maintains a watchful stance with regard to any danger of the economy slipping into deflation and would of course take action, if needed, to prevent deflation. In the meantime we can expect both very slowly rising inflation, further recovery and some additional strengthening of the dollar, which as a fiat currency is always relative to what other currencies are doing. At some point, devaluation in the currencies of trading partners will slow and stabilize. The U.S., equity markets having already been through 6 years of strong recovery, will quite naturally slow their advance, and in fact they appear, at present, to be putting in a top, which may take many months.
In the early phases of QE we saw a weakening of the currency and a consequent rise in equity prices. We should see, for a while, the effect of a recovering economy tempered with a strong dollar lead to a more or less level market, to slightly up or down depending on whether the economy or dollar strength is the more important factor. The longer range market bias, other than at times of crisis, is always up, driven by both psychology and inflation. U.S. monetary policy is presently in limbo waiting on further macro economic development, but eventual Fed tightening is widely-anticipated.
The reality is that there is simply no justification in the actions of the present U.S. Fed under Janet Yellen for a remark such as "
the moment prices fall below the magical, mystically created 2%, Central Bankers are on the airwaves about pushing loose monetary policy, printing more money and keeping emergency measures in place."
Yes, occasionally an incautious Fed branch bank President sends reporters scurrying by suggesting what actions the Fed might take in this or that hypothetical scenario. But there is no truth to any remark that suggests the Fed will do anything in the "moment", except, of course, under the most extraordinary circumstances. If the Fed can be criticized for their speed of decision making, it is for moving too slowly rather than too rapidly.
There is nothing magical nor mystical about the Fed's 2% target. Secondly the Fed and Treasury are not keeping emergency measures in place. Even though recent inflation, as measured by the Fed, has been a little below their 2% target, they are waiting and watching, meanwhile the macro economy is moving in the intended direction, as are inflation estimates. The U.S. economy's inertia may be likened to that of a giant oil tanker, and the Fed to a fleet of tugs pushing and pulling to reposition the tanker. Patience is always needed when waiting on a giant economy to reposition itself.
