'Mini-Stagflation' to Present Big Headache for Bernanke

cnbc ^ | Friday, 26 Aug 2011 | Jeff Cox

[MontaniSemperLiberi]

Federal Reserve Chairman Ben Bernanke used the word “inflation” exactly seven times in this Jackson Hole speech Friday.

What he didn’t mention once was inflation’s ugly cousin and its baggage of not only rising prices but also higher unemployment.

The prospect of stagflation, indeed, is raising a growing amount of hackles on Wall Street these days on worries that the jobless picture isn’t getting any better and the cost of living—the primary effect of inflation—is rising.

Core inflation [cnbc explains] , mainly a measure of price increases not including food and transportation, gained 2.2 percent annualized in the second quarter, according to Friday’s gross domestic product breakdown.

The most recent Consumer Price Index shows a 3.6 percent overall gain when including the volatile costs of items at the grocery store and gas pump.

These are not overly alarming numbers from a Fed perspective, but they do indicate inflationary pressures beyond the 2 percent level the central bank tries to achieve as part of its dual mandate to maintain strong employment levels while controlling prices.

And they are partly attributable to what Bernanke has famously referred to as “transitory” items such as a jump in vehicle prices and rising commodities.

“But other factors, most notably rising rents, should continue to exert upward pressure on core inflation,” Michelle Meyer, economist at Bank of America Merrill Lynch, said in a research note. “This shows ‘mini’ stagflation, which puts the Federal Reserve in a challenging position.”

[MontaniSemperLiberi]

It took years for inflation to take hold before Carter. It started in the late 1960's and accelerated all the way through 1981. Bernanke now imagines that the Fed can react fast enough to stop inflation.

[DaxtonBrown]

It is not stagflation, that is a Keynesian aboration. It is biflation. I wrote a whole chapter on it for my book, Surviving Civil War II.

http://www.futurnamics.com/biflation.php

[hsalaw]

I will never understand why food and fuel aren’t included in the inflation calculation. Everyone needs food and fuel.

[BobP]

It is biflation.

--------------------------

Spot on... banks and unions got the stimulus money.

US GDP revised down to 1.0 percent in second quarter as growth stalls -- Commerce Department, Friday August 26, 2011.

The rate of growth between April and June was cut from the government's first reading of 1.3 percent and followed a lethargic 0.4 percent pace in the first three months of 2011.

This means the economy grew only 0.7 percent in the first half of the year.

Bernanke punted the ball back to Washington, saying Congress has to do more to create jobs and grow the economy!

China owns $1.2 trillion of US government bonds and has the power to make our lives miserable. As farfetched as this may sound, Bernanke basically needs the go-ahead from China before he does QE3.

We are still in a depression folks, and it's here to stay. A 1% growth rate is actually a 1.5% decline. It takes a 2.5% growth rate for us to stay even.

If Ben goes down a QE3 path, get ready, because the deficits are going to be enormous and unending.

Historic.

And once his EPA starts shutting down coal-fired plants, and people start dealing with rolling brownouts, to go along with no paychecks, Zer0's approval ratings may dip into the single digits.

[Jimmy Valentine]

If in fact transportation and food were included, as they should be we have been in a “no growth, inflationary economy” for about the last two years.

[EVO X]

The housing crash will continue to push apartment rents up

At the national level, there isn't much going on with rent increases. BLS says rents have gone up 1.4% YOY.

[RayChuang88]

There are only two things left that Obama is totally unwilling to use to get the economy going again:

1. Government needs to be substantially streamlined with less bureaucratic overlap, smaller agency size and phasing out obsolete/unneeded regulations.

2. The income tax system needs to be drastically overhauled to make it less expensive to comply with and encourage more saving and investment in the USA.

Implement these two changes the the US economy comes raring back in no time flat.

[9YearLurker]

Very sound ideas (though an editor would help you to present them with more credibility).

[PSYCHO-FREEP]

[I will never understand why food and fuel aren't’t included in the inflation calculation. Everyone needs food and fuel.]

Like Unemployment, the actual number of people who are out of work would give the real dire condition of the country and they would have to declare it a full blown Depression.

By omitting the real statistics that effect inflation the most they can go on destroying the economy without much concern from the ignorant masses.

[EVO X]

2. The income tax system needs to be drastically overhauled to make it less expensive to comply with and encourage more saving and investment in the USA.

The second the feds give a tax cut, it will likely be offset by tax increases at the state level. The ink wasn't even dry on the payroll tax holiday and Illinois raised state income tax an equal amount.

[FreedomPoster]

>>I will never understand why food and fuel aren’t included in the inflation calculation. Everyone needs food and fuel.

Many payments are indexed to inflation, like Social Security first and foremost. If these inflationary items were included, the gov’t would be even more in the hole from a cash flow and thus debt perspective.

[catfish1957]

Bungling Ben Bernanke reminds me of drunk patron at an arcade playing Whack- A- Mole.

[PSYCHO-FREEP]

Hiding the real truth from the public like this, is criminal. But the public has become so appathetic, that they are getting away with nothing short of murder. (Murder of the economy)

[Justa]

They change the formulas, weightings and calculations of all economic indicators too much for them to be reliable. You have to calculate your own:

2011:
Inflation (including fuel and food): 12%
Unemployment (U6 plus off the rolls): 23%
Misery Index: 35 (highest on record)
Economic Growth: (GDP minus federal spending): -8%

Ball park figures of course but I’d wager mine are more accurate than their’s.

[rbg81]

Its going up a lot more than 2.2 or 3.6%. My guess is 12-15%. It doesn’t help that food package sizes are shrinking to a ridiculous degree too.

[icanhasbailout]

These are not overly alarming numbers from a Fed perspective, but they do indicate inflationary pressures beyond the 2 percent level the central bank tries to achieve as part of its dual mandate to maintain strong employment levels while controlling prices.

"Controlling prices" is not the Fed's mandate. Stable prices is. Any inflation target other than zero is a violation of this mandate - prices rising 2% y/y on an indefinite basis are NOT stable!

[Scotsman will be Free]

So the govt can lie about true inflation levels.

[Buckeye McFrog]

I will never understand why food and fuel aren’t included in the inflation calculation.

Because Obama's approval rating would be around -17 if they were