February 17, 2005


Interest rates on hold with jobless tally at 30-year low
(Larry Elliott, February 17, 2005, The Guardian)

The Bank of England yesterday adopted a wait-and-see approach to interest rates amid news that a 30-year low in claimant-count unemployment has prompted only a modest increase in pressure for higher wages.

Mervyn King, the Bank's governor, said that higher earnings growth posed the biggest threat to inflation exceeding the government's 2% target and he stressed that the rate-setting monetary policy committee would be watching the labour market "extremely carefully".

But the Bank's quarterly inflation report contained little to make the City concerned that an imminent rate rise was in prospect.

Though it's better than the reverse, central banks continue to fight inflation in a deflationary climate.

Posted by Orrin Judd at February 17, 2005 6:54 AM

Aargh! LOW INFLATION is not the same thing as deflation! In the US at least, we have around 2% inflation, not deflation.

Posted by: Tom at February 18, 2005 5:07 PM

No we don't.

Posted by: oj at February 18, 2005 5:14 PM

OJ - Go to the Bureau of Economic Analysis site, www.bea.gov/bea/newsrelarchive/2005/gdp404a.htm and hop down to Table 6, Price Indexes...
As I look at this I conjecture that you say there's deflation because there has been a decrease in durable goods prices recently. But look at the price indexes for everything else (e.g., the GDP price index, the top number). For example, the price index used for 2003 is 106.003 and that for 2004 is 108.281, so prices in general have risen (108/106 =1.019).

Posted by: Tom at February 19, 2005 8:47 AM


No, I say it because even Mr. Greenspan has testified that the way they measure inflation is absurdly outdated and wildly overstates the number. He testified it was by 1% or more, but was understating the case.

We are in a deflationary epoch with no end in sight:



Posted by: oj at February 19, 2005 8:52 AM

If inflation as officially measured is ~2% and the number is overstared by 1%, then actual inflation is still 1%, not negative.

Posted by: Tom at February 19, 2005 7:12 PM

Yes it would be. But it's overstated by far more. Greenspan can't be expected to undermine the entire economic reporting system.

Posted by: oj at February 19, 2005 7:42 PM

Hmm, I think you're placing far too much credence in one guy's (inferred) opinion. Greenspan is very smart; he's not God.

Posted by: Tom at February 20, 2005 8:26 AM


Rather I don't place much credence in his opinion. He continues to fight an inflation that ceased to exist years ago. The Fed chairman should always be a man under 30, because old men fight the economic problems of their youth, not of our day.

Deflation is easy enough to see all around you. Nothing costs more today than it used to and if you look at the statistics on the number of hours the average person has to work to buy items they're truly startling. Your granddad worked two monthsz to afford a tv, you work less than a day, and so forth.

Posted by: oj at February 20, 2005 8:32 AM