Inflation: Prices or Salaries

What is inflation? To Krugman it seems to be wages. To others it seems to be buying power, the variation between wages and prices. For example if my wages are static, namely my real salary remains say $20 per hour, and if milk has gone from $3 per gallon to $4 per gallon, and gasoline has gone from $2 per gallon to $5 per gallon, and the transit costs to go to work on the train has gone from $14 per day to $22 per day, then this is inflation! Perhaps they do not notice this in Princeton but just a few miles north in Morristown it is quite evident.

As the good Professor states:

So here are a couple of questions.

First, do you see any sign that workers are about to (or are even able to) demand higher wages to compensate for the higher prices of gas and food?

Second, do you any sign that employers are getting ready to make more generous wage offers?

Third, have you heard anything about companies feeling that they have room to raise prices by substantially more than the rise in their raw material costs?

The answer to all three questions is clearly no. So what we have is a rise in raw material prices, which will largely get passed on the consumers, but no hint that this is spreading into a wider rise in prices; and with labor costs flat, that means we get a one-time jump in consumer prices, but no persistent rise in inflation.

 But for the poor schlubs who see the prices, that my friend is inflation. It drives up the GDP and we have shown that it indeed is indicated by the PPI as well as the DOW Index, that is the costs of things are higher than what we get to buy them. That is what happens in an open global economy. So is there inflation, you betcha.