The Absence of Inflation

I know this seems counter to what folks are feeling. It seems as prices are always going up. Note the remarks by Barry Ritholtz in the comment section at the clipmark. Inflation measures a broad basket of goods, not just a handful of things that on our lists of "Top Ten Irks." If the cost of something is up, consumers often substitute something else. If apples are pricey, they buy bananas. If oranges are expensive, they try the grape juice. If gasoline is up, they rideshare, use mass transit, telecommute, drive less, and hybrid purchases increase.

Interest rates are up because of the *fear* of inflation, rather than inflation itself. We're just not seeing the overall increase in the sum total of goods in that CPI market basket. IMHO, anyways.

clipped from blogs.wsj.com Inflation, Conspicuous By Its Absence For months economists and doomsayers warned darkly of the looming spectre of inflation. Yet the bond market barely budged, and the stock market wasn’t all that worried, either. It’s striking, then, that the selloff in bonds in the past few days is notable for the absence of the one factor that is frequently the cause of higher interest rates — inflation. The most recent report on core inflation, as measured by the personal consumption expenditure deflator, released last week, showed it rising at an annualized 1.995% rate, the lowest since 1.993% in February 2006. Yesterday Greg Ip reported on the Livingston Survey of economists, used by Federal Reserve officials, which shows forecasters aren’t too concerned about inflation, either.