Enough Hot Air About Inflation

It isn't our biggest concern right now.

By Daniel Gross
Posted Monday, May 24, 2010, at 11:49 AM ET

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Can we please stop worrying about inflation—at least for a few months? Since the onset of the financial crisis in 2008, there has been serious concern that the massive expansion of the Fed's balance sheet, the central bank's policy of zero interest rates, and the large stimulus (and ensuing deficits) would, by some iron law of economics, debase the currency, boost the government's long-term borrowing costs, and ignite inflation. (Last year, I wrote about the debate over this topic between inflation-fretting historian Niall Ferguson and inflation-downplaying economist Paul Krugman.)

By almost every measure—the price of gold being a notable exception—observed inflation and inflation expectations have remained remarkably contained since the fall of 2008. They have done so even as growth has reignited in the United States. And the evidence weighing in favor of deflation—or at least a serious lack of inflation—continues to mount. Last week, the Bureau of Labor Statistics reported that inflation, as measured by the Consumer Price Index, fell 0.1 percent in April. Over the last year, it has risen a tame 2.2 percent. Factor out volatile food and energy prices and the long-term trend was more heartening. In the last 12 months, the core index has risen just 0.9 percent, "the smallest 12-month increase since January 1966." (Check out this inflation chart Krugman posted on his blog on May 19.)