CS Lewis on the Non-Threat of Inflation

by David Frum

Richmond Federal Reserve President Jeffrey Lacker is poised to snuff out inflation with higher interest rates, according to the WSJ:

Rate hikes aren’t imminent, but they are getting closer, the official said. “I have been saying that I am waiting for the time when growth is strong enough and well enough established that it will be clear we need higher rates,” Lacker said. “I don’t think we are there yet,” although he also said “we are getting to a time period where it’s going to be a more and more cogent question” as to when tighter policy will be required. ...

Lacker said the Fed must be vigilant about inflation, and that he expects the core inflation rate to gradually drift back toward 1.5%, as he noted the relatively stability of inflation expectations. He warned “we are capable of causing inflation when the unemployment rate is relatively elevated,” so the Fed must continue to monitor the situation closely.

Meanwhile, back on Planet Earth, we are menaced by the much more ominous and more difficult to redress threat of deflation, according to John Makin.

U.S. year-over-year core inflation has dropped to 0.9 percent--its lowest level in forty-four years. The six-month annualized core consumer price index inflation level has dropped even closer to zero, at 0.4 percent. Europe's year-over-year core inflation rate has fallen to 0.8 percent--the lowest level ever reported in the series that began in 1991. Heavily indebted Spain's year-over-year core inflation rate is down to 0.1 percent. Ireland's deflation rate is 2.7 percent. As commodity prices slip, inflation will become deflation globally in short order.

How can this be? CS Lewis nicely explained today's inflation illusion in his "Screwtape Letters":

We direct the fashionable outcry of each generation against those vices of which it is least in danger and fix its approval on the virtue nearest to that vice which we are trying to make endemic. The game is to have them running about with fire extinguishers whenever there is a flood, and all crowding to that side of the boat which is already nearly gunwale under.