Date posted: May 24, 2011
Federal Reserve Chairman Ben Bernanke recently said he thought the big jumps in inflation we’ve had in the last few months are just temporary. But, as N.C. State University economist Mike Walden points out, this doesn’t necessarily mean that Bernanke expects gas and food prices to drop.
“I think this gets at what someone like Mr. Bernanke would use as a definition for inflation and what other people would. What most people on the street, when they look at inflation, they’re thinking about the level of prices. So they look at gas prices at almost $4 a gallon and remember when they were $2 a gallon. They say, ‘Wow, that’s a big jump.’ And the same with many food commodities.
“When Mr. Bernanke looks at prices, he looks at the rate at which they’re increasing. So, for example, if he says the big jumps in gas and food prices are temporary, what he does not mean is that he expects gas prices to come down say from $4 to $2 a gallon. All he means is that he expects perhaps gas prices to stay at $4 a gallon and then move up but at a very slow rate.
“So what he means by slower inflation and what the person on the street means by slower inflation may be entirely two different things.
“Now we could, of course, see gas prices come down. And I think the big mover of that would be if we had some resolution to all of the conflicts that are going on in the Middle East. But I think, long run, we’re probably going to see gas prices and many food prices stay at the very lofty levels.
“Maybe the best we can hope for is that they don’t move much higher after that.”
Category: Economic Perspective