Sticker Shock: The Fed may deny it, but Americans know that prices are rising. Inflation is back.

by Joshua Roberts

“I can’t eat an iPad." This could go down in history as the line that launched the great inflation of the 2010s.

Back in March, the president of the New York Federal Reserve, William Dudley, was trying to explain to the citizens of Queens, N.Y., why they had no cause to worry about inflation. Dudley, a former chief economist at Goldman Sachs, put it this way: “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.” Quick as a flash came a voice from the audience: “I can’t eat an iPad.”

To ordinary Americans, however, it’s not the online price of an iPad that matters; it’s prices of food on the shelf and gasoline at the pump. These, after all, are the costs they encounter most frequently. And with average gas prices hitting $3.88 a gallon last week, filling up is now twice as painful as when President Obama took office.

Maybe in June, when the Fed stops quantitative easing (its program of injecting cash by buying government bonds), inflation will recede. Maybe high fuel prices will, as Goldman Sachs predicts, slow the economy and revive the specter of deflation.

Maybe. Or maybe inflation expectations started shifting when the guy from Goldman—a Marie Antoinette for our times—seemed to say: let them eat iPads!


http://www.newsweek.com/2011/05/01/sticker-shock.html