Posts Tagged ‘inflation’

Glimmer of light

16 August 2012
No, I haven’t suddenly turned into an economic optimist, but this week’s new retail sales report is even better news than the media have noted. What’s they’ve noted is that retail sales in July rose 0.8% relative to June, which was better than expected. They’ve also noted that retail sales fell 0.7% in June, which kind of cancels it out. But the bigger and better news, I think, is in the yearly change: retail sales rose 4.1% compared with July 2011, which is a pretty healthy rate of increase. And retail sales for the three-month period of May-July 2012 were 4.3% above the corresponding period for last year.

Two components that caught my eye:

  • Sales of sporting goods, hobby, book, and music stores rose 10.6%. Perhaps not a very large part of GDP, but notable in that these goods tend not to be necessities. The surge in spending on these goods may point to growing consumer confidence that the consumer-confidence surveys (which tend to be focused on big-ticket purchases) do not pick up.
  • Nonstore retailers’ sales rose 11.8%. I assume this mostly means online sales from places like Amazon.com. Double-edged sword: good for consumers and those companies, probably bad for job creation as a whole, as I’d expect companies like Amazon.com to be a lot less labor-intensive than traditional brick-and-mortar stores. Which may have something to do with why the U.S. economy has been so crap at job creation over the past dozen years.

I should note that these numbers are not adjusted for inflation, but even after the adjustment they are still decent, especially considering that the Eurozone is basically in recession (0% growth in 1st quarter, 0.2% decline in 2nd quarter). The consumer price index rose just 1.4% y/y (July 2011 – July 2012) and not at all in July 2012, so this is a real improvement. Has the American consumer awakened?

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Deflation

17 June 2009

For all the talking heads’ bloviating about the massive inflation to come from current Fed policies and the spending stimulus, as well as the media’s eagerness to pronounce the recession over, you can be forgiven for not noticing that deflation has not exactly gone away.  The Bureau of Labor Statistics announced yesterday that over the past 12 months wholesale prices dropped 5 percent and today that over the same span consumer prices dropped 1.3%; the respective declines were the largest since 1949 and 1950.

I said a few months ago that I was not particularly worried about deflation, and I’m still not, as it seems mild by historical standards and because expansionary Fed policies are making sure that money-stock growth is strong.  But an awful lot of people have assumed away the recession and are now wringing their hands about the threat of inflation, and these data suggest both impulses are premature.*

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Printing money?

10 June 2009

Trivia question:  How much money has the Federal Reserve printed in its entire ninety-five-year history?

Answer:  $0.  The Bureau of Engraving and Printing, part of the federal government’s Department of the Treasury, prints all the money.  And none of those bills become “money” (i.e., part of the money supply, M1 or M2) until they’re held by the public anyway.

Am I being pedantic?  After all, those dollar bills are “Federal Reserve Notes” and are delivered to the twelve Federal Reserve Banks upon request.   I don’t think it’s pedantic, though, as there’s a world of difference between printing money and dropping it from a helicopter (as described in countless economics classrooms and which would be very inflationary) and how those bills actually do hit the street (generally not covered in econ classes, an omission that has always mystified me*, and which is not so inflationary).

Anyway, what brought on this post is the constant chatter in the media and the blogosphere about how the government or the Fed is printing money.   (Of course this chatter is most pronounced on the right.  The three minutes I heard of Limbaugh’s show this year were devoted to some witless sarcasm about we should all be allowed to print counterfeit money because the government is already doing it.  Har de har.)

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The phantom inflation menace, and a credit crunch update

30 May 2009

Krugman has it right here, in yesterday’s NYT. I’d been planning a post on the recent spate of fear-mongering about the deficit, and Krugman covers a lot of the same ground.  One of the arguments against deficits is that they may lead to high inflation down the road, if the government leans on the central bank to “inflate away the debt” (i.e., jack up the price level so as to reduce the real burden of the national debt), but Krugman notes that there are precious few such examples in recent (post-WWII) history.  He concludes:

‘. . . it’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal seems to be to bully the Obama administration into abandoning those rescue efforts.

‘Needless to say, the president should not let himself be bullied. The economy is still in deep trouble and needs continuing help.

‘Yes, we have a long-run budget problem, and we need to start laying the groundwork for a long-run solution. But when it comes to inflation, the only thing we have to fear is inflation fear itself.’

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CPI: Energy fools the magician

15 April 2009

Today’s release of the March CPI figures brings the news that we had our first 12-month deflation, of 0.4%, since 1955.  Yikes, right?

Not really.  The deflation came mostly from lower energy prices.  The “core” inflation rate, which excludes food and energy prices, was 1.8%.

Likewise, the modest price dip of the past month (0.1% each month) was also driven by falling energy costs.   Non-energy prices rose slightly.

What is the source of these falling energy prices?  Some of it seems to be a function of the sagging economy (poorer people drive less), but I expect there’s favorable supply shock in there somewhere.  And I have to think it nets out to a favorable supply shock for consumers as a whole.

Geithner deserves a raise!

14 March 2009

I say that not because I’ve been a fan of the Treasury Secretary’s job performance so far (far from it), but because positions like Treasury Secretary, Securities and Exchange Commission Chair, and President of the United States should be well compensated.

In the case of finance-related positions, anyone who was previously working high up in the industry or even in a Fed bank must take a huge pay cut to take on a job that brings power and prestige but also frustration and blame.   Cases in point:  Geithner and new SEC Chair Mary Schapiro.   Now, neither is going to have any trouble paying the bills:  Geithner made more than $400,000 last year at the New York Fed and received a similarly sized severance package; Schapiro made almost $3 million as head of the Financial Industry Regulatory Agency (the securities dealers’ self-regulatory board) and got a severance package of over $7 million; but still.

Geithner’s salary at Treasury:  $196,700.

Schapiro’s salary at the SEC: $162,900.

After adjusting for the much higher cost of living in Washington, DC than in Oswego, NY, the head of the SEC barely makes more than I do.  (Not that I think I’m overpaid. . . )

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