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THE SMALLEST 12 MONTH INCREASE IN THE HISTORY OF THE CPI

Not to smash this point to bits this morning, but I entirely agree with Mark Thoma here:

“The smallest 12 month increase in the history of the index and people are worried about inflation? This might be a good time to repeat this chart from the SF Fed that I’ve posted here in the past:

When we look back at this episode, we are going to conclude that policymakers did too little, not too much, and what they did do mostly came too late.”

And as I keep repeating, monetary policy is a blunt instrument in a balance sheet recession.  We need fiscal aid if we’re to overcome the dragging aggregate demand problem.  Unfortunately, the new Congress is intent on reducing the deficit as they convince themselves that we are Greece.  I think it’s wise that Ben Bernanke has implemented QE2 in order to stave off a credit crisis relapse (and yes, I still fully believe this is his intention), but overcoming this trend towards deflation will require much more than monetary policy, which is now impotent.

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