David R. Henderson  

Higher Is Not Down

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In a front-page report in the Wall Street Journal on low inflation in the United States (where the inflation rate for the past 12 months was only 1.2%) and in the euro zone (where it was only 0.9%), the authors, Sudeep Reddy, Brian Blackstone, and Jason Douglas, write:

The downward pressure on prices presents a conundrum for policy makers across advanced economies.

No, it doesn't. Low inflation may present a conundrum, but "downward pressure on prices" doesn't present a conundrum because prices are rising. That's what inflation means. Sure, some prices have fallen, but others have risen more than enough to offset those falling prices. That's another way of saying that we have inflation.

These supposedly sophisticated economics reporters for one of the world's leading financial publications have failed to distinguish between falling inflation and falling prices.

As Brad DeLong is wont to ask, "Why oh why can't we have a better press corps?"


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CATEGORIES: Macroeconomics



COMMENTS (23 to date)
Alex Godofsky writes:

A thing that is rising can face downward pressure that reduces the rate at which the thing rises.

WRD writes:

Do we have a 2% inflation target or not?

Paging Scott Sumner!

Craig writes:
Alex Godofsky writes:

A thing that is rising can face downward pressure that reduces the rate at which the thing rises.

A slower rising rate is still a rising rate. "Downward pressure on prices" seems to imply that prices are dropping.

Norman Pfyster writes:

A decreasing rate of increase would also imply a "downward pressure" (repeating what Alex Godofsky wrote in the first post). There is also "upward pressure" on prices. The effective rate of inflation is the vector sum of upward and downward pressures (see, economics can be scientific!).

Andrew_FL writes:

@ Alex Godofsky-

A thing that is rising can face downward pressure that reduces the rate at which the thing rises.

A thing which is rising is experiencing net upward pressure. If it is slowing, either the source of upward pressure decreased, or something that acts as a diminisher thereof, increased. But it is not correct to say that it is facing "downward pressure," it is correct to say it is facing "diminished upward pressure."

Incidentally, which index is being referenced for that 1.2% figure?

David R. Henderson writes:

@Alex Godofsky and Norman Pfyster,
Potentially good point. I’m inclined to agree with Craig, though. I think the reporters just blew it.
@WRD,
Do we have a 2% inflation target or not?
The Fed claims to have a 2% inflation target.

David R. Henderson writes:

@Andrew_FL,
I agree with you.
The 1.2% is the increase in the CPI in the previous 12 months.

ryanyin writes:

They claim to have a 2% target, but since they never hit it (and yet have been known to worry about tapering), it's impossible to believe that's been their goal all along. You would have to believe that it's impossible for a central bank to create modest inflation even if it tried. The facts seem much more consistent with a de facto 1.6% inflation target (at least over the last couple years).

Jim Glass writes:

"The downward pressure on prices presents a conundrum for policy makers across advanced economies."
~~~
"sophisticated economics reporters ... have failed to distinguish between falling inflation and falling prices."
~~~

I don't see it. They didn't say prices were falling, they said prices were experiencing downward pressure.

Since when must something actually fall to experience downward pressure?

If I add weights into the basket under a helium balloon surely they increase the downward pressure on the balloon. Is the argument really that the added weights *don't* apply downward pressure if the balloon continues to rise at a slower rate?

I can't buy that. And anyone can give countless other examples where entirely literally things experiencing downward pressure rise. (Hey, when I stand up out of my chair I am subject to downward pressure but rise, though the pressure may cause me trouble in doing so, and as my derriere expands over the years the increasing downward pressure slows my rise.) So I have no problem with this as a journalistic usage.

Plus we know that a slowing of the rise in inflation to below the market's previous 'internalized' expectation is a mainstream explanation for recessions (via the sticky wages/prices mechanism) -- and so may fairly be said to "present a conundrum for policy makers". Which makes the full quoted wording of the WSJ reporters fine by me.

Shane L writes:

Is it possible this phrase was changed by a sub-editor and the authors were not responsible? Often writers are dismayed to see their articles edited by sub-editors desperately trying to make the text fit in the allotted space.

Alex Godofsky writes:

The original quote did not say "net" downward pressure. An FBD can have many vectors, some of which point up and some of which point down, and we can say "well the effect of this particular arrow, which is comparative new, is to do such-and-such...".

The quote is not at all evidence of incoherent thought.

Daniel Kuehn writes:

I'm confused.

If I am paddling in my kayak up the Potomac and I start to approach Chain Bridge the current picks up. I never move backwards, but I would say that I am running into greater downstream pressure on the kayak.

Am I missing something? I don't think this is wrong at all. I think everyone knows what inflation means, right? Certainly WSJ readers.

As you allude to, if they said "falling prices" that would be clearly wrong. But they didn't say that at all.

Daniel Kuehn writes:

Jim Glass nails it when he says "I don't see it. They didn't say prices were falling, they said prices were experiencing downward pressure."

Yancey Ward writes:

Is the change in the rate of change such that eventually prices will start falling?

Andrew_FL writes:

I would argue we are dealing with a bit of a problem where the phrasing is ambiguous, such that a casual reader could be confused. Do they specifically identify a new or growing downward vector, and the upward vectors already extant? If not I think a reasonable person unaware of the details of what is going on might interpret them as saying there is *net* downward pressure on prices, if only reading the article casually.

Now, I think it is fair for Daniel to say, WSJ readers are not likely to be fooled, at least for the most part. But I still think it is sloppy writing.

@Jim Glass-the total "pressure" being experienced by a rising body must be upward, else it couldn't be rising. If it were only experiencing being pushed down on, it would have to fall.

@David R. Henderson-Thanks. I always get so confused by people quoting these rates without specifying what index they use, because different people refer to different things, then their numbers don't agree, and...well, it can start to make your head spin after a while, you see what I mean?

josh writes:

"Why oh why can't we have a better press corps?"

Don't take this the wrong way but given a choice between your blog and the WSJ I'm on team Murdoch 100%.

The authors of this article are referring to downward pressure with respect to the fed's inflation target of 2% (and other central banks which have similiar targets). i'm sure you'll agree 1.2% is below 2, hence downward pressure.

This is probably a good topic for you to teach to your students on why they target 2% rather than 0% to avoid deflation... just make sure you learn it before you teach it.

This will conclude your blogs time in my news feed.

English Professor writes:

I've been reading about great concern over deflation since 2009. That means that many economists believe that there has been on-going downward pressure on prices. Isn't the main purpose of QE to prevent deflation? So the Fed believes that there is persistent downward pressure, yet even with enormous monetary stimulus, it can't get the inflation rate up to its 2 percent target. Given this background, it seems reasonable to talk about downward pressure.

Jay writes:

@Josh

I doubt this was receiving much time if this is what put you over the edge, but thanks for your readership.

Can you quote the part of the article that confirms your suspicion that the author was directly comparing the 1.2 to the 2% Fed target?

David's point is that the article would have been better served to say "a smaller rise than expected" as "downward pressure" without mentioning the NET upward rise seems to imply a drop in prices to a lay-reader.

Daniel Kuehn writes:

Andrew_FL -
I don't think needing to read in context quite merits "ambiguous". "Ambiguous" suggests that even in context it could mean several different things. In the context of the title, the rest of the article, etc., there is only one thing that this can mean. There is no ambiguity here.

Daniel Kuehn writes:

And note that David isn't claiming ambiguity. He thinks it is very clear. The only problem is his read of the language makes no sense at all (which is atypical for David, I should add).

Scott Scheule writes:

Being it's Christmas and all, I think we can afford to extend the author the slightest bit of charity in interpreting his words. I mean, the atmosphere is exerting downward pressure on me right now--doesn't mean I can't climb stairs.

Confused Jew writes:

Christmas is on December 19?!

Kendall writes:

@Andrew_FL

A thing which is rising is experiencing net upward pressure. If it is slowing, either the source of upward pressure decreased, or something that acts as a diminisher thereof, increased. But it is not correct to say that it is facing "downward pressure," it is correct to say it is facing "diminished upward pressure."

Physically this is not true. If you throw a ball up in the air it is under a net downward force from the instance it leaves your hand even as it continues upward at a slowing rate. Not that this has anything to do with inflation!

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