Why There's No Real Inflation (Yet)

According to Milton Friedman, "inflation is always and everywhere a monetary phenomenon." If that is true, then you have to wonder where the heck all of the inflation is. Every central bank in the Western world is holding interest rates down, and almost all of them are printing money like it's going out of style. Five years ago, nearly every economist in the world would have told you this would cause inflation to skyrocket, and the big deficits governments were running would make matters even worse. Taken together, monetary and fiscal policies are far more extreme than they have ever been. Yet, inflation has remained rather tame at 2%. In Friedman's world that just wouldn't be possible. What does it all mean?.... It means even Nobel Prize-winning economists can get it wrong-at least in the short run. Here's why Friedman has been wrong on inflation so far. It starts with his basic theory.