Today’s papers carry lots of angst over rising prices, commonly called inflation. “Global Price Fears Mount,” reads one Wall Street Journal headline. “New Push at Fed to Set an Official Inflation Goal,” reads another.
Within these articles are a number of “facts.” I want you to go through these and see if you can tell what the unifying fallacy is:
“Annual inflation in China is almost 5%…”
“Last month [in Europe], inflation unexpectedly jumped to 2.2% in the eurozone from 1.9%, the first time in more than two years it has exceeded the ECB’s target of just below 2%. Some economists say it will rise about 2.5% in the next two months”
“Inflation [excluding food and energy] was still weak at 1.1% in December”
“UK inflation is approaching 4%…”
“The Fed informally has said its goal is inflation of around 2%”
“Forecasts cluster around 1.75% and 2%.”
There are more, but this sampling is large enough to make my point. The underlying fallacy here essentially boils down to the idea that government officials can calculate a true inflation rate to within one-tenth of one percent. And that’s not all! Government officials can also dial inflation up or down to within tolerances of one-tenth of one percent.