If You Want Signs of Inflation, You Will Find Signs of Inflation

The core inflation rate is holding steady at 0.9 percent, the lowest rate in 44 years. The United States actually experienced a month of deflation in April. Still, yesterday, The New York Times felt it fitting to warn that the Federal Reserve — all too aware of the above statistics — might be overlooking other data points that suggest creeping inflation and a need to raise interest rates sooner rather than later. The piece warns, “If the Fed is behind the game, there’s a good chance everyone will suffer.”

The first “leading economic indicator” mentioned?

Whole Foods, purveyor of richly priced organic onions and other groceries, last week raised its best estimate for same-store sales growth this year to as much as 7 percent from as little as half that. Its shares have gained 45 percent this year, while those of price-conscious Wal-Mart are down a bit.

The second?

The chief executive of one of America’s biggest banks contends that the strength of the American economy will surprise everyone. The hedge fund manager John A. Paulson has been busy telling investors he is seeing the upward side of a V-shaped recovery. His investments in banks and other economy-driven stocks back up the view.

That is right. The Fed is overlooking the obvious. How could one stroll into one’s local bourgeois purveyor of Kombucha and prosciutto and not think, “Millions of unemployed? Bah! All is well in this kingdom!” And when a Wall Street baron who made billions off of the economy’s collapse promises the recovery is right around the corner — it is, right?

Wrong. There are no signs of imminent inflation. There are many more signs of potentially problematic deflation: The current rate of core consumer prices is below the Federal Reserve’s target, and the central bank is withdrawing its emergency quantitative easing programs and has interest rates as close to zero as possible.

This question of inflation is no academic matter. If the Fed begins fighting inflation, it will begin tightening the money supply and slowing the rate of growth in the economy. That, in turn, will choke off the recovery that the millions and millions of unemployed are counting on. Crying “inflation” too early would be catastrophic for the economy, and yet many economic commentators seem strangely eager to do it.

If The New York Times wants to see signs of inflation, of course it can go out and find them. But improving sales at Whole Foods and the promises of a hedge fund billionaire? I think those are signals the Fed can safely ignore, in lieu of focusing on the horrific economic headline numbers.