Friday, January 14, 2011
I was thinking the word "deflation" seems to have slipped in status in the economic blogosphere lately. From being in every other blog post, suddenly it seems to have slipped back into the trees with the recent influx of slightly better economics news.
Intrigued, I went and updated the graph above, which shows the monthly changes in the CPI ex food and energy. As you can see, the last two data points (Nov and Dec 2010) show a bit of an uptick. Possibly one could attribute this to the Fed's QE2 program. So this presumably explains why people stopped talking about it.
However, although actual deflation has not occurred yet, it certainly seems premature to declare the end of the trend based on that uptick - it's well within the existing range of the noise around the overall deflationary trend since the onset of the great recession in December 2007.
So, on the one hand, we have oil prices clearing their throats as though thinking about attempting a new run at a peak, and we have food commodities higher than any time in the last thirty years. And yet, we have prices of finished goods very weak.
It seems like the theme is the the world has not quite enough resources to run society as currently configured, but overcapacity in the ability to turn resources into finished goods (relative to subdued final demand, anyway). Hence we have inflation in commodities, but deflation in finished goods.
We need a new word to describe this state of affairs. My proposal is "misflation".