In Europe, those views are even more deeply held. The German
Bundesbank -- still seared by memories of hyperinflation in the 1920s and
the collapse of political order that gave rise to the Nazis -- remains
ever vigilant. Its president, Jens Weidman, is strongly opposed to many
of the recent sovereign bailouts to preserve the euro on the grounds
that good money chasing bad will spark inflation.
These officials tend to be firm yet measured in their concern ‑
something that cannot be said of populist politicians and analysis. The
Tea Party is fueled not just by debt animus but by a deep-seated belief
that "real" inflation is much higher than what the government reports,
and it insists
that the spending habits of the government will end in the collapse of
the dollar, hyperinflation and the government's de facto stealing from
hard-working Americans' money.
is the fear of gold bugs, and added to the mix are the views of former
Representative Ron Paul and his son, Senator Rand Paul (R-Ky.), that the
Fed is putting the United States in inflation peril. Many professional
investors and economists are similarly convinced that the current
policies of zero interest rates and deficit spending are setting the
stage for massive inflation.
How to explain the inverse relationship between inflation concerns
and inflation realities? Yes, low inflation in recent years has been
juxtaposed with modest economic growth and wage stagnation for most
Americans ‑ as well as for most Europeans and Japanese. Given that
perceptions of economic well-being are ultimately tied to disposable
income, these forces have largely canceled each other out.
In addition, people tend to be acutely aware of the volatility of
energy and food prices, which have spiked - and then receded - many
times in past years.
Yet even with food and fuel, inflation perceptions can be deceptive.
Many people are aware that the price of a loaf of bread has risen from
less than 40 cents in the 1970s to an average of more than $2 today.
Food prices have also risen periodically over the past few years in the
face of global demand and droughts. That cements a perception of
Yet over the past few decades, food as an overall percent of income
has gone down, down and down. In 1972, Americans spent 15 percent of
their disposable income on food; today, that figure is 11 percent. The only shift
has been in eating out ‑ people spend more on restaurants and much less
on food at home. And that has happened even as incomes have stagnated.
Gasoline, which has fluctuated widely, has maintained a steady share of
disposable income for decades, at about 3.5 percent, which is now
decreasing because of production from shale oil deposits and
One of the strongest arguments for vigilance against inflation comes
from economists following the dicta of Milton Friedman that "inflation
is always and everywhere a monetary phenomenon." In that view, the
actions of governments and central bankers are the determining factor,
and the experience of the 20th century was that inflation
often followed government policies, especially promiscuous government
spending. Since that is what happened in the past, many are firmly
convinced that it will, perforce, happen in the future.