This could be the start of something big

by Russ Roberts on February 19, 2009

in Inflation

Here it comes (HT: Drudge):

Inflation at the wholesale level surged unexpectedly in January,
reflecting sharply higher prices for gasoline and other energy products.

The Labor Department said Thursday that wholesale prices increased
by 0.8 percent last month, the biggest gain since last July and well
above the 0.2 percent increase that economists had expected.

From the end of the article:

Despite the big jump in wholesale prices in January, economists do
not believe inflation is on the verge of becoming a problem, given the
country's deep recession.

No economists are quoted to support this belief, save one optimist, coming here at the very end of the article:

That downturn, which began in December
2007, has been keeping a lid on inflation pressures, which has given
the Federal Reserve the room to slash a key interest rate to nearly
zero without having to worry about kindling inflation.

Reserve Chairman Ben Bernanke told an audience at the National Press
Club on Wednesday that he saw little risk that the Fed's efforts to
fight the recession and a severe financial crisis would trigger
inflation presusres.

He said that once the economy begins to
rebound and financial markets stabilize, the Fed will be able to
quickly reverse the actions it has taken before inflation becomes a

In next Monday's podcast, Allan Meltzer argues that this will not be possible politically. I fear he's right.


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