hi d&o,
so we differ on how we think the economy works and what we think is happening in the economy. i am content to use the official statistics. you argue they misrepresent reality, based in particular on personal experience.
but let's begin with theory.
the folks calling for hyperinflation saw it coming as an immediate consequence of qe. they have been saying it since 2008. in contrast, i have been saying since then, this risk is not present in a deflating economy in which the central bank has a strong reputation.
regardless of whether you believe there is some inflation not represented in the stats, there certainly has been no hyperinflation.
so, yes, i think it is reasonable for me to say i was right as were others and the hyperinflation folks were dead wrong. i know that folks who were wrong the past five years now wish to open-end the timeline. but the original timeline was more arithmetical: qe + weak economy implies hyperinflation, as with weimar germany. now it is: qe + recovering economy implies hyperinflation. i note the change.
i also note that the reputation of the central bank is a missing variable in the original statements of hyperinflationistas. and the federal reserve has a very robust reputation. you don't have to take my word. you see it in the incredibly low rates for long term treasury bonds. people see treasury bonds as a safe haven in a crisis. that's to say a store of value. ie they are worth a good deal to investors when the value of money is increasing relative to the value of other goods.
so we have been in a period characterised overall by deflation (and low inflation), as the inflation statistics confirm. the folks who gather inflation figures are not fooled by different sized packets. really they aren't.
that is not to belittle your own experience. just to say that inflation numbers are derived from the whole economy rather than one person's experience. and indeed, i remember you mentioning that farmland prices in your region had actually been increasing, and this was an interesting (if local) phenomenon. perhaps it was also a result of the relatively high prices of grains (one of the sorts of costs that have seen increases at times during this cycle).
as i have also said, when the economy begins to recover, there is some risk of higher inflation (not hyperinflation) on a broad basis. at the same time, this will be the result of more positive dynamics. gdp growth, fewer unemployed etc. at some point the fed will tighten monetary policy. and it will reverse the (essentially) intra-government (fed-treasury) transactions that so many folks are exercised about right now. but actually, the increase in inflation will also solve some of the issues of overhanging debt for the whole economy - at the expense of debt holders, of course. everyone is going to bear some measure of the pain of the last five years in the end. people will move their money out of treasuries. maybe some of it will chase the nascent housing recovery.
as regards prices. certainly some go up. but as dig points out, others go down. to add a few. look at the cost per gigabyte of information storage, or the price of music, or the price of flat screen televisions. or as some wit pointed out, look at the subscription cost of the site offering alternative inflation numbers (that suggest inflation is increasing), which is unchanged over five years.
yes, house prices contribute to overall inflation figures. people usually don't complain about inflation in house prices, but it also causes problems. as we have just seen. and returning to normal relationships between house prices and income is both necessary and painful. yes, this is deflationary. yes, it also contributes (via borrowing capacity) into weak consumption.
by the way, core inflation actually EXCLUDES energy and food and commodities. That is because these prices are volatile and they are largely set by global markets. Core inflation is indeed lower than non-core (ie energy plus commodities) inflation. Core inflation tends better to reflect the trend. Whereas things like weather events, speculation about war with Iran and other factors contribute to non-core prices, which makes them volatile.
So yes, you are undoubtedly experiencing high petrol pump prices right now. but this has little to do with the policies pursued by the central bank and everything to do with the oil cartel, wall street mischief and tensions in the middle east. these high fuel costs will of course work their way through the chain into the prices of food, raw materials and derivative goods.
ps i'd also like to correct something i wrote earlier. the fact that the fed is buying mortgages in the latest round of qe i think should actually raise treasury rates as it encourages folks to move assets out of treasuries and into real estate.
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