Inflation is a monetary phenomenon due to an overexpansion of the money supply. It’s a general rise in prices. What you see in foodstuffs due to ethanol competition feels like inflation at the consumer level but it’s not what economists identify as inflation.
I dont call what they call it. We are seeing shortages drive prices up. And they are way up
Thanks Professor. Now that Macro Econ 101 class is over we can get back to reality. A massive quarterly jump in wholesale prices is not a monetary phenomenon, and it is very much inflation, in every sense of the word that matters. The same dollars chasing shrinking base of goods (because due to government imposed distortions, the goods are being squandered) is just as much inflation as more dollars chasing the same goods.
The increase in food prices because of ethanol production seems to me to be more of an adverse supply shock.
Why, then, has Berhnanke telegraphed that he is going to lower rates to 2.5% (50 basis points) two weeks from now?