The number of headlines screaming about inflation, stagflation, and even hyperinflation is rather amazing in light of what’s actually happening in the credit markets, the stock market, the treasury market, the housing market, and especially gasoline prices at the pump. Let’s take a look at some headlines from today.

Fed Governor Fisher says “U.S. May Face Lingering Inflationary Fever

Observe the noble python.” The above is a video on cost-push inflation stemming from a wage-price spiral in China. Fisher uses a python snake as an example. The video is long, and quite boring except when he is talking about the snake.

Bloomberg is writing U.S. Economy: Housing, Prices Raise Stagflation Risk.

“There’s no doubt we’re in a period of stagflation now,” said Peter Kretzmer, a senior economist at Bank of America Corp. in New York who formerly worked at both the Federal Reserve Bank of New York and the Fed Board in Washington.

BusinessWeek is Bracing for Inflation.

Growing evidence suggests American consumers, businesspeople, and political leaders should all be bracing for double-digit inflation, probably as early as 2009. The relative price stability of the past 15 years is giving way to worsening inflation, despite the recent softening of oil prices.

CNNMoney is asking Stagflation? Or just stagnation?

The inflation figures for July were ugly. But oil prices have fallen and the dollar has strengthened in August. Too bad a global slowdown is the reason.

The Daily Reckoning is writing Hyperinflation and the Dollar’s Monetary Destiny.

Have the markets already gone through their inflationary melt up phase? Are they now giving way to debt deflation, in which cash is hoarded and the price of all assets (tangible and otherwise) falls? Well…no.

Yahoo News is reporting Wholesale prices rising at fastest pace since 1981.

Wholesale inflation surged in July, leaving prices for the past year rising at the fastest pace in 27 years, according to government data released Tuesday.

All the above articles all came out August 19, except for the BusinessWeek article that came out on the 18th.

Gas prices down for 42nd consecutive day

Those link headlines are an amazing display of lopsided sentiment given that gasoline prices have fallen 42 consecutive days.

The average price of a gallon of self-serve regular gasoline in San Diego County decreased for the 42nd consecutive day today, having fallen 65.5 cents since hitting a record high more than eight weeks ago, according to the Oil Price Information Service.

The declining prices stem from lower demand at the pump and declining crude oil prices, according to the Automobile Club of Southern California, told City News Service.

Cost Push Inflation Debunked

There is going to be a stunning drop in the CPI coming up that will smack inflationistas square in the face. Unfortunately that wake-up call is highly unlikely to stop silly talk about cost-push inflation. Such talk has been going on for years. It continued today with that ridiculous speech by Fisher. A partial transcript can be found in the WSJ at Fedspeak Highlights: Fisher on Risk of “Inflationary Fever”.

… [A] second scenario is less felicitous. … the scenario envisions the possibility that rather than passing through the python, the recent burst of cost-push inflation is giving the beast digestion problems that might manifest themselves in the form of a lingering inflationary fever.

Unless the python that is the U.S. economy can quickly pass the recent burst of cost-push pressures, we risk a reinforcing spreading of inflationary impulses and expectations.

Actually, there is no such thing as cost push inflation. It simply does not work that way. If you think it does, the cure is to do an internet search for “Caroline Baum Cost Push Inflation” and start reading. You will learn something even though she does have the definition of inflation wrong.

My favorite in the series, Old U.S. economy rules need to be modernized, is from January 2007. Inquiring minds (especially inflationistas believing in cost push inflation from China) should take a look. Baum’s debunking of cost-push inflation is timeless, no matter what definition of inflation one is using.

Mike “Mish” Shedlock
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