Saturday, May 16, 2009

Government As The Great Deflation Fighter

While the overall U.S. CPI stayed unchanged due to zealous use of seasonal adjustment (unadjusted it rose 0.2%), the so-called core index which some like rose 0.3%. No need to worry about inflation though, because fans of the core index at that point always come up with some "core core" index. What other item should be excluded so as to create a "core core" index varies of course depending on just what sub-item increases particularly much that particular month.

This month it was tobacco prices, which rose sharply, largely due to the federal tax increase implemented by Obama and his fellow Democrats, as well as some additional tax increases in some states (though actually the price rose even more than the average amount of the tax increases).

But since deflation is supposedly the big worry, and since the tax increase was so successful in raising tobacco prices, that means that some economists now see a new solution to deflation: raise taxes! Quote from the Wall Street Journal:

"Indeed, if deflation threats eventually do become more apparent, the Fed may have a solution on its hands. “Thank you Washington — along with postage, subway fares etc. — the government is a significant source of inflationary pressures,” said John Ryding and Conrad DeQuadros at RDQ Economics"

Indeed, government has long found ways to raise prices, in addition to the traditional method of printing money. From taxes to regulation to slaughtering cows to reduce milk production. That all of this means reduced consumer purchasing power is apparently irrelevant.


Blogger Tomas said...

And really illustrates the problem of equating inflation with rising prices.

4:03 PM  

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