TPC has a new post up on inflation here but it is so full of poor analysis I’m starting to wonder.

First off, he posts this data from the Federal Reserve:

Just looking at the data, it’s not unreasonable to conclude that inflation is at 1.4%, having fallen from 2.8%. Thus deflation is more a risk than runaway inflation. And in fact, that’s essentially his introductory paragraph:

A little over a year ago I said inflation concerns in the USA were blown out of proportion and that we were likely to see an environment of disinflation “with a greater risk of deflation than hyperinflation”. One year later that’s clearly what has occurred in the USA as disinflation ensued. Overall inflation has continued to decline and deflationary fears became so substantial in Q3 2010 that the Fed panicked into implementing QE2.

Where in reality, if we take the same period approximately, mid 2009 when the CPI was at 210, it is now at 220 in little over a year, which is approximately an inflation rate of 4.76%. That is not even taking into account that the CPI weights OER’s at 25% of the index, and they have been falling along with the housing market.

Rather, let’s look at some specifics: food, you know something it’s rather difficult to replace.

Energy is again on the rise:

How about medical care? You know, should you be hit by a bus.

How about education?

How about transportation?

One thing we know from the credit crisis is that the Fed’s various “money printing” operations have had a far lesser impact on the rate of inflation than most presumed they would. Despite an explosion in the monetary base inflation is near its lows.

Twaddle. Utter rubbish. Only if you are looking at the data that you provided in this post. Inflation, far from being near it’s lows, is near, or exceeding it’s all time highs.

From a demand-pull perspective the story remains little changed from last year. This environment of low capacity utilization and tepid aggregate demand is likely to result in benign inflation. This is due to the continuing strains at the consumer level.

Demand-pull inflation: no such beast. There is money and credit expansion: that’s it.

Although commodities have become the hot button topic in recent months, the truth is that labor is still the most significant input in the cost-push inflation equation. And that input remains weak.

Cost-push inflation: no such beast. See above.

This all adds up to an environment in which we’re likely to continue seeing below average levels (3.5%) of inflation in the USA.

At least he’s in the ballpark with the average inflation rate. The average hides all manner of nasties however:

Annualized Inflation Rate
US………1970 – 1985…………………………………………UK……..1970 – 1985
……………7.03% ………………………………………………………11.48%

Year Inflation Rate
US……………………. Inflation Rate…………………….UK

1970 …………………………..5.92 ……………………….6.37
1971……………………………4.30………………………..9.40
1972 …………………………..3.31 ………………………7.13
1973 …………………………..6.21 ………………………9.22
1974 …………………………10.98 …………………….16.02
1975 …………………………..9.14 …………………….24.18
1976 …………………………..5.76 ……………………..16.50
1977 …………………………..6.45 …………………….15.88
1978 …………………………..7.61 ………………………8.30
1979 ………………………….11.27 …………………….13.41
1980 ………………………….13.52 …………………….17.97
1981 ………………………….10.38 …………………….11.86
1982 …………………………..6.13 ……………………..8.59
1983 …………………………..3.21 ……………………..4.63
1984 …………………………..4.32 ……………………..4.95
1985 …………………………..3.56 ……………………..6.09

Although I do expect inflation to approach ~2.5%+ by the end of 2011 we remain in an environment where downside risks remain more prevalent than the risk of high levels of inflation. An underlying environment of deflation is likely to continue being masked by government intervention and a global recovery that results in higher commodity prices.

I don’t dispute that deflation is possible: even likely, if, government had allowed the liquidation of worthless assets, and the deleveraging and bankruptcies of the banking system. It was governments direct culpability that the excesses were built into the financial system, and they are trying to do it again, through blowing another bubble.

The risk of hyperinflation remains extraordinarily low based on this outlook and we’re likely to continue experiencing below average levels of inflation although the tepid recovery in the USA and abroad should contribute positively to inflation in the coming year.

Low, but not impossible: and that is a very real risk that is daily growing as the government continues it’s reckless expansion of the money supply.