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September 20, 2017

Charting Inflation for Yellen: Asset Price vs Real Economy


By Tyler Durden,  Zero Hedge

In what has been the most stunning admission by Janet Yellen so far during her press conference, the Fed Chair said that "we don't fully understand inflation" and added that the "shortfall of inflation this year is more of a mystery."

With all due respect, it's not. But since the Fed is often confused, we would like to do the central bank a favor and "explain" inflation, or the lack thereof as the Fed laments, with just one chart.



To simplify enough that everyone on the FOMC will understand, here it is:

Real economic prices: no inflation.

Asset prices: rampant, and in some case soaring, inflation.

And just in case there is still confusion, here is Goldman:

The long economic cycle that we have been enjoying is, in part, a reflection of loose monetary conditions and low interest rates. Exhibit 17 is a simple but effective way to demonstrate this effect. Taking data back to 2009, the start of the period of extraordinary monetary policy, we can see a very big difference between ‘prices’ in the real economy – measures of wages, consumer price inflation, house prices, commodities – and asset prices. Also shown here is the long-run average nominal GDP growth and nominal GDP growth over this period for the US and Europe (in red). Financial assets have significantly outstripped both nominal GDP growth and inflation in the real economy, largely as a result of rates staying low.

So, dear Janet, if you are so worried about the shortfall in inflation, maybe take a look at asset prices instead...  

Courtesy of Tyler Durden, founder of Zero Hedge  

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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