In advance of tomorrow’s report on consumer prices that has the potential to offer a few surprises given the recent surge in the cost of gasoline, clothing, and other essentials, Amity Shlaes files this report at Bloomberg about how inflation has a way of coming about suddenly and, once it does, can be very difficult to stop.
A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.
Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”
“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.
“Sudden” has happened to us before. In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1 percent for 1915 to 7 percent in 1916 to 17 percent in 1917. To returning vets, that felt awful sudden.
History has other examples. In 1945, all seemed well: Inflation was 2 percent, at least officially. Within two years that level hit 14 percent.
All appeared calm in 1972, too, before inflation jumped to 11 percent by 1974, and stayed high for the rest of the decade, diminishing the quality of life for whole cohorts.
The fact that financial repression is now official government/central bank policy and that it’s been more than a generation since we’ve seen high official rates of inflation in the U.S. will surely make dealing with rising prices even more difficult this time around.
Also, this ominous warning was offered:
The greater the denial before, the faster the inflation accelerates after.
Yikes! Suddenly, tomorrow’s CPI report seems a whole lot more interesting…