Inflation is “always and everywhere a monetary phenomenon” according to Milton Friedman. But we do tend to use the word in different ways. When the money supply rises excessively, in the Latin American model, or the classical Weimar or Zimbabwe inflations, both wages and prices spiral higher. That is the kind of inflation Mr Friedman is talking about.

Here in the US, we have a different kind of inflation, and it is really a currency-driven price inflation. As Mr Bernanke cuts interest rates, or threatens to do so, the value of the dollar declines in foreign exchange markets. That means that more dollars are required to buy the goods and commodities that are traded internationally. Prices go up not only on imported goods, but also on goods produced and sold domestically that could (potentially) be sold on world markets. US buyers have to compete with the offers from overseas and the prices of domestic goods are often set by world prices. It is a big mistake to presume that the effect of the declining dollar is limited to goods that are actually imported.

Sure, the ethanol nonsense is driving up food prices. If you start paying farmers to burn their crop, it should be no surprise that the price of the unburnt portion increases. After all, that is why the ag lobby bribed made campaign contributions to Congress. But there is much more at work here, and while I remain a deflationista, I don’t rule out price inflation in some segments such as food and energy, even while overall wages and prices are declining due to high unemployment and deflating bubbles.

As I’ve said before and I will say again, it is essential the the Fed be stopped from attempting to manipulate the economy. Its sole mission should be to maintain a steady price level.