Well, not if you know as much math as a third-grader. See, the inflation rate is just the weighted average of all the price changes in the economy.Sure, but the weights are non-linear. I look at that below, however, let us ask the more basic question. A 2% inflation over 70% of the prices in the 20 trillion dollar economy comes to, 280 billion in more cash than sales. Where does that extra money come from?
Let me help Matt out. In the steady state, we have either fewer sales or more money. It is one or the other. There is one source for the money, the Fed's digitizer. The Fed is releasing some 75 billion per year in interest rate subsidies to Congress, that is free unencumbered money. Any other borrowings by Congress is backed by market based interest payments. So, we have some 200 billion in extra prices to account for. Matt may think that extra money is a transient effect, soon to be returned after the downturn. But that is a six year transient effect. That is a long down turn.
The other cause of the inflation could be shortages, fewer producers and more demand. This chart, for example:
What about those weighted averages?
Well, Matt Obrien, you are going to need fourth grade math. Prices that drop have a shorter than linear shelf life, they get under counted. So, in the end, the 2% inflation needs some more work, more than we are getting from the wonkblog. The most likely cause of inflation is a continual supply shortage due to Congressional spending with multipliers less than one.
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