“Consumer Price Inflation Hits Six-Year High,” is the headline of a July 12 economic report. The Bureau of Labor Statistics has just reported that as of June, the Consumer Price Index was up 2.9% over a year ago, its biggest increase since 2012. Without food and energy prices, which the Federal Reserve likes to exclude, consumer prices were up 2.3% over the twelve months. Earlier this week, financial commentator Wolf Richter helpfully reminded us of the obvious: “Consumer price inflation whittles down the purchasing power of labor.”
How should we think about that? Let us contrast the views of high officers of the Federal Reserve at different times.
William McChesney Martin was the all-time longest serving Chairman of the Federal Reserve Board, from 1951 to 1970, spanning five different U.S. presidents. A Federal Reserve building in Washington is named after him.
Charles Evans is the current President of the Federal Reserve Bank of Chicago. He has held this position for more than a decade, since 2007.
Dr. Evans recently told the Wall Street Journal that he thinks the current inflation “looks quite good,” adding, “I’d like to see inflation expectations a little bit higher.”
Such language would presumably have surprised Chairman Martin, who memorably described inflation as “a thief in the night.” A scholar of the Fed as an institution, Peter Conti-Brown, interprets Martin’s vision of the central bank accordingly: “The keeper of the currency is the one that one that has to enforce the commitment not to steal money through inflation.”
So does inflation “look quite good” or is it “a thief in the night”?
Fashions in central bank ideas change over time: Which view do you prefer?
Image credit: Frederic Muller