Man Without Qualities

Friday, November 15, 2002

Remember Deflation?

So long ago, in a time beyond living memory - that is, before the elections on November 5 - the risk of hideous Japan-style deflation loomed large in the minds of certain economists, especially some who seemed particularly associated with, or whose opinions were reported by media that are generally sympathetic to, Democrats - although deflationary concerns were by no means limited to such economists and media.

Well, forget deflation. Deflation risk went out with the zoot suits! The modern, hip, cutting-edge, economist-on-the-go of today is concerned about ugly INFLATION numbers... but not alarmed:

[T]he Labor Department's Producer Price Index, which measures prices of goods before they reach consumers, jumped 1.1 percent in October, after a tiny 0.1 percent rise in September, lifted by higher prices for new cars, trucks and gasoline. October's rise in the PPI marked the largest increase since January 2001, economists said they weren't alarmed.

``While the October wholesale price numbers look ugly, they don't imply that inflation is back up and running wild,'' said economist Joel Naroff of Naroff Economic Advisors.

The core rate of inflation, which excludes volatile energy and food prices, rose by 0.5 percent in October, but most of that increase reflected the higher automobile prices. When those are taken out, the core inflation rate nudged up by 0.1 percent in October.

Against that backdrop, economists said they didn't believe the PPI report flashed a danger signal that the country was on the path to the twin evils of weak economic growth and upward spiraling inflation.

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