Despite the enormous amount of liquidity pumped into the global economy over the past few years by numerous central banks, inflation remains remarkably subdued around the world. Maybe governments are tampering with their measures of inflation so it is understated. If so, then it must be a widespread global conspiracy because so many inflation rates are so subdued.
On the other hand, a few of those governments, particularly the central banks of the United States and Japan, have said they would like their policies to boost inflation in order to reduce the risk of deflation. The most plausible explanation for why inflation remains so low is that the central banks so far have succeeded in offsetting, but not eliminating, some very powerful deflationary forces.
On our website, we regularly update our global inflation chart book. August's core CPI inflation rate on a year-over-year basis was only 1.6% among OECD advanced economies with the G-7 rate down to only 1.4%. In September, this inflation rate was only 2% in the U.S. and 1.6% in the eurozone.
Inflation is higher among many of the emerging economies. However, many of them have a history of chronically high inflation. In other words, it's hard to pin the blame for their inflation rates on the monetary easing of the past few years. The latest headline CPI inflation rates are high in some of the major emerging economies, like India (10.1%), Indonesia (4.5%), Brazil (5.6%) and Mexico (4.8%). On the other hand, it is only 1.9% in China.
If you are looking for out-of-control inflation, look no further than the college and hospital next door in the U.S. The CPI data show that college tuition and fees have increased 1,036% since January 1979 vs. 546% for medical care goods and services vs. 238% for the overall CPI. In other words, college costs have more than quadrupled relative to the CPI over this period, while medical care has more than doubled relative to the CPI.
We all have explanations for why health-care costs are out of control. I've talked to lots of doctors about it, and they all agree that tort reform could lower those costs by 25%! Just ask your doctor.
What about college costs? I blame Elizabeth Warren, who is running as a Democrat against Sen. Scott Brown in Massachusetts. She is a professor at Harvard University. She gets paid $350,000 for teaching one course and has a lucrative consulting practice. She is not unique in this respect, as reflected in the CPI for college tuition and fees.
Source: Ed Yardeni — Ed Yardeni is the president and chief investment strategist of Yardeni Research Inc., a provider of independent investment strategy and economics research for institutional investors.