BobW
Doug Henwood <dhenwood at panix.com> wrote:
On May 1, 2008, at 9:47 AM, Robert Wrubel wrote:
> doug, please explain the worry about "inflation". Can commodity
> prices alone create inflation? Can there be inflation during a
> recession? Is inflation more of a poltical Issue (because ordinary
> people are effected by it) than a financial one (loss of dollar
> asset value, difficulty of making business decisions, etc.)?
Sure commodity prices can create inflation, though to get a sustained uptrend going you need rising unit labor costs (in political terms, more working class militance). The commodity price surge is partly the result of strong demand (China, etc.), partly politics (liberalization of ag markets, instability in oil producing regions), and partly serious real world stuff (possible oil supply constraints, climate change leading to crop failures). Monetary tightening can "fix" the demand issue by slowing growth or creating a recession, but the others aren't really amenable to monetary manipulation.
Central bankers greatly fear a rise in inflationary expectations. If people, consumers and business managers, assume that inflation is rising, then it can become a self-fulfilling expectation. (Look at the hoarding of rice for a scary example.) So their instinct is to nip it in the bud - only the financial crisis has really complicated that. Note that one of the dissenting votes in the FOMC decision was Dallas Fed president Richard Fisher, who thinks the U.S. economy is infinitely resilient, and is far more worried about inflation than the risks of financial implosion.
Doug ___________________________________ http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk
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