

Price Waves

This article was written by in Economy. 8 comments.

Jim Jubak has published an important article about inflation. Jim, with support from The Great Wave by David Hackett Fischer, explains how the Federal Reserve Bank is ignoring long-term inflation while being concerned with shorter, cyclical events. There is historical precedence for the price inflation the world is currently going through.

Jim picks out some items about price waves from the book that could help explain our current economy:
* Price waves aren’t recognized until they have been around for a while.
* Increased population, therefore demand, strains food and fuel prices.
* Increased demand means less efficient resources will be used, increasing production costs.
* Increased money supply drives inflation. Think of credit cards and no-down-payment mortgages.
* Wealth’s advantage by demanding tax cuts and other incentives to stay ahead of inflation while the working class falls behind inflation.
* The rising pessimism in society is a common thread in certain stages of price waves.
* Economic changes that might have been less harmful during better times create a crisis as prices soar.

I would be interested in reading Fischer’s book to follow up and learn about the historical evidence for this evaluation of inflation and about historical patterns pertaining to our economy today.

Updated June 17, 2014 and originally published May 24, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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avatar dman

This concept of long term inflation may be somewhat interesting but frankly the concept of modestly rising inflation is already assumed by everyone in the economic system in this country. The idea of long term inflation is not ignore, it is accepted as fact and the short term attempts are to manage its growth.

I don’t understand the point of this article. The fed is focusing on the wrong inflation? What does that mean? Should they be taking some action to halt long term inflation, or control it? What exactly would that action be. If this concept of long term inflation is secular and not cyclical, and its global and not national, then how could the Fed possibly do anything to affect it in the slightest? Clearly they could not. Yet the concept is postulated that the Fed is focusing on the wrong inflation?

That doesn’t make any sense. Clearly the want wants to stabalize short term inflation. Does anyone really care about managing the rate of inflation as it is averaged over 180 years? I don’t think so.

So what is the solution? Ah, the author offers nothing. Just a list of historical events and what happened and then says the outcome is up to us. Wow, that was informative.

avatar Luke Landes ♦127,435 (Platinum)

If someone could explain to me why the prices of food and fuel are not included when considering inflation, I’d be thankful. I don’t understand why the biggest contributors to increases in the cost of living are ignored in the inflation calculation. I have no background education in this, so any insight would be helpful.

avatar Eric

The fed focuses on “core” inflation because food and energy prices are so volital that they don’t offer as much information about short term inflation over the next year as one is inclined to assume. To say however that food and energy prices are ignored is also incorrect. They are considered. The fed does not use core inflation exclusivly.

The Federal Reserve Bank of San Francisco has a good summary of how and why different inflation measures are used.

avatar Luke Landes ♦127,435 (Platinum)

Interesting, thanks! The article mentioned (linked here for clickable access) describes both sides of the debate around food and energy prices. It’s very informative.

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