Inflation is reigniting. The U.S. Bureau of Labor Statistics announced last week that consumer prices, which had declined from November and December, rose 0.4% between December and January, an inflation rate of 4.9% on an annualized basis. The bureau announced earlier that producer prices rose 0.8% in the same period, a 10% annual rate of inflation.
Why is this happening? The answer is painfully clear. From the end of January 2008 to the end of January 2009, the Federal Reserve's monetary liabilities, the sum of currency and bank reserves known as the "monetary base," more than doubled. This is a year-over-year expansion unprecedented in the Fed's history. During the last three months of that period alone, the base grew an incredible 50%. (At that pace, it would have quintupled in a year's time.) The base has thankfully receded a bit in February.
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My thoughts: Ben Bernanke may be worse than Greenspan.
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