Monday, June 20, 2011

Paging Paul Krugman: The Poor and Middle Class Pay the Inflation Tax

Professor Krugman has stopped saying that QE2 doesn't contribute to commodity inflation.
A good thing. He was starting to sound like a moron.
His latest offering was to the effect that headline inflation would be down in the next report because of the 10% decline in gasoline prices. He didn't mention that 'headline' has already bled into 'core', which will be higher.
Or that he has been arguing against the mere mention of the headline number.

His second-to-last inflation post was to the effect: "Hmmm, there may be a whiff of inflation but 'tis a trifle".
There's a good academic, laying the groundwork for an argument pivot.

Here's the Economist's Buttonwood blog:
Inflation, equality and the debt crisis
Who suffers from inflation?
FURTHER to the last post on whether the authorities could or should attempt to solve the debt crisis via inflation, there is a new  report from the respected Institute for Fiscal Studies on the British experience over the last decade.

The characteristic of recent inflation is that it has been concentrated on food and energy, two items which absorb a higher proportion of the spending baskets of the poor than of the rich. As a result, lower income households tended to experience higher inflation rates than higher income groups over the last decade. The worst rates of all were suffered by the single pensioners. The trends seem to have accelerated; the poorest quintile suffered an inflation rate of 4.3% between 2008 and 2010, the richest 2.7%.

The details refer to Britain but I suspect they have wider implications. The last decade has generally been marked by falls in the relative prices of manufactured goods, which can be made more cheaply in Asia. The better-off may benefit from cheaper flatscreen TVs or iPads but these are beyond the budget of the poorest; worse still they may have lost their jobs in the factories that made these goods.

What this report does not cover, of course, is the effect of higher inflation on the savings of the richest. But this is quite a complex area. The richest only spend around half their income, so consumer inflation only affects that portion; they have more of their savings in equities and property, asset classes that are better protected against inflation, than on the cash deposits which middle-income savers might depend on for the bulk of their interest income....MORE 
I'll dig up the links to the good Professor's posts tomorrow.