It's fascinating to see how a buzzword spreads. Consider the word "transitory" as it applies to the economy.
Ben Bernanke and the Fed have labeled the current bout of inflation as "transitory." And in the May 16 Wall Street Journal, it was reported: "Most economists in the latest Wall Street Journal forecasting survey agree with the Federal Reserve that severe inflation pressures are ‘transitory' and price increases will be more moderate through next year."
"Transitory" means not permanent, but existing for a short period of time.
Hmmm. That all seems rather vague, doesn't it? After all, in a dynamic, changing economy, what isn't "transitory"?
The average forecast from the Journal's group of 56 economists put CPI inflation at 3% at the end of 2011, and moderating thereafter in 2012 to the 2.2%-2.3% range.
Let's hope this average forecast turns out to be right. But one has to question such optimism given the Fed's fantastically loose monetary policy for more than two-and-a-half years now.
It is worth noting that a few economists in the survey are far more somber in their inflation projections. For example, Mark Neilson of MacroEcon Global Advisors points to inflation (annualized rates) rising from 2.9% in June 2011 to 3.8% in December 2011, 4.2 in June 2012, and 4.5 in December 2012.
Also, Sung Won Sohn, from California State University, is looking for inflation to run at 3.5% in June, 3.6% in December, and then pushing up to 3.7% in June of next year and 3.8% in December 2012.
In addition, Brian S. Wesbury and Robert Stein of First Trust Advisors point to inflation at 3.5% in June 2011, 3.8% in December 2011, 3.4% in June 2012, and 3.8% in December 2012.
Finally, Tracy Herrick from The Private Bank estimates inflation moving from 2.4% in June 2011, to 2.9% in December 2011, 3.5% in June 2012 and 4.1% in December 2012.
Given how loose the Fed has been under Bernanke since the late summer of 2008, inflation rates in the range projected by Neilson, Sohn, Wesbury, Stein and Herrick - or even higher - should not be a surprise.
As a reminder, higher inflation is an economic negative for various reasons, including uncertainty due to volatility in inflation, an inflation-premium being added to interest rates, an eroding currency, and increased taxes for the parts of our tax system not indexed for inflation, such as capital gains.
The Fed continues to play with the "transitory" (whatever that really means) and dangerous fires of inflation.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.