Tuesday, June 28, 2011

Billion Prices Project vs QE2

The Billion Prices Project uses online data to measure prices on a daily basis. Their results  closely follow non-seasonally adjusted CPI.

You can see the important influence commodity prices have had on CPI, but seeing as how those were, at least partially, a result of QE2* and still don't fully explain the rise in prices after QE2 I see this graph as another strong piece of evidence that QE2 worked.

I expect price increases to continue to moderate in the future. The economy still can benefit greatly from more aggregate demand.

*Commodity price increases as a result of higher world aggregate demand (QE2) are reflecting something good, price increases as a result of supply shocks (Libya) are bad.  This is economics 101 but it is still very often misunderstood.

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