Last year, and probably other times, I pointed out some rather perverse outcomes of targeting headline inflation that includes things like food. Since monetary policy operates on the demand side, and in my regular style, I sensationalized the implications of reducing the demand for food. At the time, the whole concept was speculative, or at least I felt somewhat better about my righty-tighty counterparts believing that the concept of reducing the demand for food was speculative.
Today, however, I stumbled upon an article in Bloomberg about the current experience of food price deflation, and a particular passage in it left me feeling profoundly sad about the state of the world of macro and nearly weeping for the Republic:
In a startling development, almost unheard of outside a recession, food prices have fallen for nine straight months in the U.S. It’s the longest streak of food deflation since 1960 — with the exception of 2009, when the financial crisis was winding down. Analysts credit low oil and grain prices, as well as cutthroat competition from discounters.
Other miscellaneous pieces of information to be found in this Scott Sumner post about the behavior of the base in the early 1980’s, coupled with my post here about the base in 2007-2008 simply add to this sadness:
The Volker disinflation (in Sumner’s post quoting commenter Jim Glass):
Plus, looking at the M1 numbers for the period from Fred, one sees that after rising steadily pretty much from beginning of time, M1 peaked at $429 billion on 4/20/81, three months before the start of the recession, then went down a little bit, then bounced down a tiny tad and back up again repeatedly to hit pretty much exactly $429b again on 7/6, 8/10, and 10/12 thru 10/26 without ever going at all over $429b (or going below $423b). So on the dates three months before the recession started and then three months after it started, M1 was $429b, exactly unchanged.
The Bernanke disinflation (from my post about Fed’s holdings):
According to this graph, the Federal Reserve’s asset holdings remained nearly constant until approximately the tail end of 2008 when there was a sharp increase. The Fed’s share of Treasury securities declined as lending to institutions grew, keeping the overall level of holdings relatively flat. It looks like increased lending to financial institutions was sterilized until the tail end of 2008; I’m assuming that coincides with the implementation IOR.
Perhaps someday, the rest of the world will agree with me that the effects of headline inflation targeting are simply not worth the cost, and the entire practice should be deemed a violation of basic human rights.