Greg Mankiw says he’s not worried about inflation because wage growth is depressed.

I think that’s a good way to talk about inflation and an important point to make. However, at the same time I think we as economists should look at other indicators. One is this

FRED Graph

Now a big factor in Core Inflation is also rents – both actual and imputed – which aren’t captured in this data.

However, the basic point I want to drive here is that for  inflation to occur it has to occur through markets.

You don’t just print money and then bam prices go up. Some set of humans has to decide to bid more, ask more, or raise the listing price. This means we ought to see nominal retail sales rise.

Indeed, we can correlate the two

FRED Graph

I can take out shelter but it doesn’t change the picture much

FRED Graph

And, finally here they are together on the same scale

FRED Graph

You can see that the magnitude of retail sales movements is larger.  That is to be expected since total sales is price times quantity. When movements in the market are dominated by movements in demand price and quantity will go in the same direction and so the affect of total sales will be an amplified effect of price.