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Brendan reflects on his study of economic fundamentals in an effort to come to terms with Federal Reserve Chairman Ben Bernanke’s befuddling explanation of recent price increases.

In a series of recent remarks, Federal Reserve Chairman Ben Bernanke appears to largely dismiss questions pertaining to seemingly indiscriminate price increases. This phenomenon we’re experiencing is nothing more than what he terms “transitory inflation.”

Transitory inflation. I don’t think I’ve ever heard of that before. I lost my Economics 101 textbook a couple of moves ago, but I don’t remember Dr. Ratliff even mentioning the term. What is transitory inflation?

Webster suggests transitory means “temporary,” “not persistent.”¹ Perhaps transitory inflation can thus be best understood as only a brief period of time whereby the prices of goods and services increase. That doesn’t seem like a difficult concept, but it does beg the question: what happens next?

If Bernanke claims we’re experiencing transitory inflation (which presumably differs from regular inflation in that it is only short-lived and thus not worthy of my concern), is it logical to presume that deflation follows in order to bring prices right back where they were? Am I correct to conclude that Bernanke expects the price of my loaf of bread, gallon of milk, and a half of tank of gas to revert back to levels enjoyed before this mysterious inflation menace snuck into my local supermarket and increased all the prices? Initially, that may sound appealing but I do remember Dr. Ratliff saying that deflation brought along its own set of concerns – ones that I shouldn’t readily dismiss.

When I reread the text of Bernanke’s comments on April 4th, I believe I found the answer. “I think the increase will be transitory,” he said, adding that “it will pass, and we will go back to a level of inflation consistent with our price stability mandate.”² Oh, now I understand. What a clever pairing of the word transient (suggesting that something will go away) with the word inflation (which by definition suggests further increases) by the former professor.

In other words Bernanke not only expects the recent price increases to stick but for prices to increase further, albeit at perhaps a lower annualized rate. That sounds much more like a term I’m familiar with – without the word transitory prefacing it. Now I know why Dr. Ratliff never mentioned anything about this transitory inflation phenomenon. He was a straight-shooting professor from rural North Carolina who may have told his fair share of tall tales during his 50 year tenure, but didn’t mix words when it came to explaining economic fundamentals. This Bernanke character on the other hand has been in Washington a bit too long.

1 “Transitory – Definition and More from the Free Merriam-Webster Dictionary.” Dictionary and Thesaurus – Merriam-Webster Online. Meriam Webster. Web. 23 May 2011. 

2 Phillips, Matt. “Bernanke: ‘Increase in Inflation Will Be Transitory’ – MarketBeat- WSJ.” WSJ Blogs – WSJ. Wall Street Journal. Web 23 May 2011.