Wednesday, July 16, 2008

5% and rising

From the BLS news release:

Consumer prices advanced at a seasonally adjusted annualized rate
(SAAR) of 7.9 percent in the second quarter after increasing at a 3.1
percent rate in the first three months of 2008. This brings the year-to-
date annual rate to 5.5 percent and compares with an increase of 4.1
percent in all of 2007.

Wow! So soon after we were told that central bankers had "figured it out", that previous inflations were due to insufficient knowledge or the use of a bad macro-model and that the era of inflation was over, we are heading right back into the soup. Yes I know that unemployment and recession are painful experiences that should be avoided if possible. But I also know that the one thing the Fed actually can control is inflation. I am not so sure they can provide a monetary solution to an adverse real event (or sequence of events).

Monetary policy: yer doin' it wrong!


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