"This graph PROVES he is wrong."
There are a number of problems with your “PROOF”.
First, by plotting two variables (X and Y) on a graph, one could conclude that:
A) X causes Y, or
B) Y causes X.
There is obviously insufficient information to conclude one or the other, or that X and Y are related at all (there are lots of other things you could plot which would follow the same rough pattern, but for which it would be ridiculous to conclude a relationship).
Second, PPI usually leads CPI, and your data shows that. However, neither seem to have any correlation to oil price increases over the last 1.5- to 2-years. Average Core PPI has actually been trending down over that time period, while average CPI was flat or trending down over most of that time (showing an increase over only the past few months). Yet average oil prices have been on a steady increase over that whole time from about $45/brl to $75/brl. In fact, average Core CPI over the last two years is lower than it was from mid-2000 to mid-2002, and oil was going for an average of about $30/brl then.
It turns out that, for the worst kind of inflation, both A and B have to be true. For instance, the worst kind of inflation is that caused by spiraling wages: higher prices puts pressure on workers to demand, and possibly get, higher wages; the higher wages are possibly passed on by employers with the result that workers demand even higher wages, and they get them. The cycle continues. That which breaks this cycle is ever-increasing productivity, so that employers can pay the higher wages without raising prices.
You offered no evidence that X causes Y, or Y causes X, or both, or that both don't follow a normal 4- to 5-year cycle and that neither causes the other. |
