Tags: Jerry Jasinowski | economist | inflation | consumer prices

HuffPo's Jasinowski: Inflation 'Has Merely Gone Underground for a While'

By    |   Monday, 25 November 2013 09:03 AM

Get ready to welcome back inflation, economist Jerry Jasinowski warns.

The lack of inflation has perplexed economists, but inflation hasn't disappeared. "It has merely gone underground for a while," writes Jasinowski in an article for the Huffington Post.

"I believe it is inevitable that it will eventually reappear in its traditional form of rising prices for food, fuel, rent, clothing, and other basic costs of living, and you will see this begin in 2014."

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That will present the Federal Reserve a tough decision, predicts Jasinowski, former president of the National Association of Manufacturers. It will either have to consider fighting inflation by tapering its stimulus or decide that some inflation is good.

The consumer price index rose 0.9 percent over the 12 months ending in December, and that's in spite of the Fed purchasing $85 billion of bonds a month. Inflation was 0.7 percent in Europe, 0.6 percent in France, and 2.2 percent in Britain — all four-year lows.

Other European countries report low inflation.

Jasinowski cites several reasons for inflation's befuddling absence.

Falling population growth through out the developed world has reduced consumer demand for products in the inflation index. The decline of labor unions has reduced upward pressure on wages, and countries with low-wages have flooded the U.S. with cheap products.

"However, we should not break out the champagne just yet," he warns. "There is in fact significant inflation at work in our economy, only it is not being reflected in the standard basket of goods and services the government uses to measure it."

Prices for stocks, bonds houses, farmland art work, and precious stones have increased as investors search for profits. Excess money has also flown into credit inflation, he says, citing private equity deals and IPOs like Twitter. "The next step will be wage inflation that is bound to occur given the income disparity between the haves and have-nots."

Strong demand for inflation-indexed Treasury notes indicates Jasinowski may be right — or at least that some investors also fear inflation.

When the Treasury Department sold $13 billion of the notes, pension funds, insurers and other direct bond buyers showed the most interest since 2011, according to Bloomberg.

"There was decent demand for TIPS at these levels as investors are looking for inflation protection," Justin Lederer at Cantor Fitzgerald LP told Bloomberg. "With economic growth expected to pick up along with easy monetary policy, at some point inflation is due to rise."

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Get ready to welcome back inflation, says economist Jerry Jasinowski. The lack of inflation has perplexed economists, but it hasn't disappeared.
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Monday, 25 November 2013 09:03 AM
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