Consider the following headlines from Bloomberg:
Gold Rises to Record on Concern European States Face Fundraising Hurdles
Copper Rises for Fourth Day, Reaches 28-Month High on Chinese Car Sales
Corn Rises to Two-Year High on Speculation U.S. May Reduce Crop Estimate
Sugar Rises to the Highest Price Since 1981 on Indian Export Speculation
Ask yourself this question: is talk about deflation even plausible in this environment?
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I'm glad that you asked because as Krugman points out, yes (http://tinyurl.com/38gmqrf) and yes (http://tinyurl.com/2ago7l5).
I often wonder what "inflation" means to different people. Right now it apparently means commodity prices. Yet the complaints come from consumers who have little to do with raw materials. I recently bought a new TV for cheaper than I would've five years ago, and when I bought lunch it came out to less than $7 -- and I got cookies with the sandwich.
The dollar either has purchasing power or it doesn't. If it doesn't -- and for the sake of making my point I will put this in the context of hyperinflation, because that's what every Glenn Beck/Ron Paul gold bug disciple has been yammering about lately -- stores would REFUSE to accept U.S. dollars as payment. And for the cherry on top, if I offered any half-witted hypocritical fake economic pundit SCREAMING SCREAMING SCREAMING about "inflation" even $5 cash on no other grounds than it was "worthless" they'd take it in a heartbeat.
Inflation means rising prices. But let's take into account my biggest costs. Five years ago when things were just peachy, gasoline and real estate prices were flying through the roof. Health insurance and education costs are STILL out of control. Yet no Very Serious Expert seemed to be all that concerned about inflation on the largest expenditures of a middle-class family back then; in fact, rampant inflation was seen as a good thing.
"Inflation" is like the word "socialism" -- it has a literal definition but in modern lexicon it's so misused it now means whatever the hell the random ideology-brainwashed dimwit in front of you wants it to mean. I can look forward to more expensive coffee in 2011 but I really don't see why this is cataclysmically more alarming than the 2007 inability to purchase a 2BR/1.5BA for less than a megalottery winning.
"Ask yourself this question: is talk about deflation even plausible in this environment"
Yes, it is. In fact, it's more probable under current conditions. You've answered this question yourself when it comes to increasing oil prices.
Increased commodity price may be passed on to consumers for some time; but if wages or credit lines are not increased enough to pay the higher costs of final products, then they will buy less or not at all, which is deflationary.
Commodity costs were passed on in the 1970s , for example, leading to an inflationary spiral, only because unions had bargaining power regarding wages and families were expanding credit substantially at the same time. There was a large increase in consumer credit in the latter half of the 70s as it grew from a very low base. Now days the situation is very different. Workers have little to no leeway in bargaining for higher wages and consumer credit (outside government) continues to contract substantially. Right now it's only govt transfer payments and higher asset prices which have allowed inflation to happen at all.
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