"Win and keep your uniforms clean . . ."

Today, the producer price index (PPI) came in up 1.2% for the month of July, twice the increase expected by economists in general.

At the same time, economist Brian Wesbury this morning has an excellent piece in the Wall Street Journal entitled "Inflation is a clear and present danger."

In it, Mr. Wesbury decisively explains why those who argue that inflation is not a threat (for example, because commodity prices have recently dropped, or because "core" CPI is significantly lower than the headline number) are wrong.

"Much like the 1970s," he notes, "there is a widespread denial that inflation is a problem today."

Most importantly, as we have asserted in previous posts, Mr. Wesbury demonstrates that the Fed's attempts to "steer the economy" in addition to its other mandate of providing a stable currency is at the root of the problem.

He uses one of the best metaphors we've heard to explain this problem:

"The Fed's 'dual mandate' -- to keep the economy strong and prices stable -- serves to support this mistake. In contrast, the European Central Bank has a single mandate: price stability. No wonder the dollar has been so weak relative to the euro. Imagine two football teams. One with a single mandate: win. The other with a dual mandate: win and keep your uniforms clean. It's clear that the one with the single mandate will have more success in achieving its goals over time."


For later blog posts dealing with this same subject, see also:

• "The Fed's oversteering and the wreckage of the past decade" 07/23/2009.

• "Ben Bernanke's non-New-Year's Resolution" 01/05/2010.

• "Why do we want the Fed to steer the economy?" 09/01/2010.

• "Likelihood of Fed over-steering increases" 01/25/2011.

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