Rising energy prices are a concern not that they will lead to higher inflation but that they will subtract from household income and thus weaken the economy, said Eric Rosengren, the president of the Boston Federal Reserve Bank on Friday. Rosengren said the lasting effect on energy prices on overall inflation “has been surprisingly small in recent years.” The surge in oil prices in mid-2008 were followed by significant declines in core inflation, he noted. Rosengren said the Fed’s innovative monetary policy has not been inflationary. “It has been more than two years since the Fed’s balance sheet expanded dramatically. Sine that time core inflation has fallen to something like 50 year lows, he said. Rosengren is not a voting FOMC member this year. He spoke to an event hosted by the Connecticut Mortgage Bankers Association.
Maybe Mr. Rosengren can explain to me how rising oil prices leads to falling household income? Spending money on oil is spending, obviously, not a change in income. I assume he meant that the rising prices eats up a larger portion of household income; in other words, non-discretionary spending rises. But there’s a term for this phenomenon of rising prices: INFLATION.
Trying to give the Fed President the benefit of the doubt, I thought maybe the article was misconstruing what he said. So I searched Google and found his actual words:
My primary concern about rising energy prices is not so much that they will lead to higher inflation, but that they will subtract from household income and thus weaken the economy.
Apparently, we live in a new economic reality. In the new economics, rising prices weaken the economy (by somehow hurting “household income” but I assume he meant income available for discretionary spending) but does not lead to inflation. Get that? I admit, this new economics is confusing so here it is in simple English: rising prices cause deflation or, at the least, disinflation.
We really are living in George Orwell’s 1984. “WAR IS PEACE, FREEDOM IS SLAVERY, and IGNORANCE IS STRENGTH.” And now, INFLATION IS DEFLATION.