Economists explain why Beck's inflation theory doesn't add up

Blog ››› ››› MATT GERTZ

Glenn Beck has cited recent, short-term increases in commodities prices to fearmonger over rising inflation -- an explanation that economists tell Media Matters is "nonsense" because of the extreme volatility of such prices.

Yesterday, Beck opened his Fox News show by claiming that "this morning, I read a report out of China. Walmart, Gap and JC Penney are now worried about, quote, 'terrifying' rise on cotton prices that could skyrocket your clothing prices by as much as 30 percent by spring. That's inflation -- radical inflation."

Beck has also cited the National Inflation Association's estimates of massive increases in food prices in the near future, which the group based on rising commodity prices and attributed to the Federal Reserve's quantitative easing policy.

But according to Nobel Laureate Paul Krugman, these claims don't add up.

"Commodity prices are very variable -- they soared in 2007-8, probably in large part because of Chinese demand, plunged in 2008-9, thanks to a global slump, and have now recovered most but not all the losses," said Krugman. "They really tell you nothing about underlying inflation, which has been steadily declining."

Dean Baker, the co-director of the Center for Economic and Policy Research, called Beck's comments "nonsense," saying: "These prices are always volatile." Pointing to a September 2007 price report from the Bureau of Labor Statistics he said he has randomly selected, Baker pointed out that at the time, corn prices had increased 49.8 percent over the previous year, while wheat prices were up 86.6 percent.

A recent New York Times article on rising cotton prices pointed not to inflation, but to a "classic supply and demand imbalance" as the cause. Cotton inventories were low due to "weak demand during the recession" and flooding in Pakistan and bad weather in China and India damaged cotton crops in those countries, even as demand in China and the United States has risen. This, combined with increased speculation on the cotton market, has driven up the price.

Krugman also pointed to a blog post he wrote earlier this month which points out that such volatility in commodity prices is typical. From the post:

Here's the annual rate of change in the IMF commodity index over time:

krugman commodity chart

So, were all the people screaming about inflation now screaming about deflation a year and half ago? Why not? In terms of level, by the way, the recovery in commodity prices has now brought the overall index about back to where it was in December 2007.

Posted In
Fox News Channel
Glenn Beck
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