Memo To The Fed: Prices Are Up

The Federal Reserve says there is no real inflation. The consumer price index isn't going up much. Yet Americans increasingly talk about paying higher prices for many of the goods and services they use in their daily lives. What's going on?

Forget gasoline prices for the moment. Disneyland admission prices are up by 6%. Many New York City theaters are charging $10.25 to see a movie, up a quarter. Prices for chocolate are up. Milk is higher and ice cream prices are set to rise. Memory chip (DRAM) prices have risen 45% over the past three months. Soybeans, corn, and any grain exported abroad are up sharply in price. Steel prices are up 75% over the past year. Georgia-Pacific Corp. (GP ) is about to raise prices on its paper towels, tissues, and napkins by 6% to 9%. Cable-TV prices are up another 5% to 8%. Medical costs are rising. Construction costs for houses are up. Import prices are moving higher. It is clear that companies are finally passing along higher prices.

The Fed believes there is plenty of slack in the labor markets to prevent inflation from taking off anytime soon. Maybe so. Perhaps the 308,000 jump in payroll jobs for March is an anomaly. Yet monetary policy takes a year to work on the economy. At the very least, it is time for the Fed to end the official fiction that the greater risk to the economy is still deflation, rather than inflation. The Fed should signal that it realizes inflationary expectations are on the rise -- and that it intends to do something about them if necessary.

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