Wholesale prices increased .5 percent in June. What really happened was that energy prices increased a bunch, and the most other prices went down.

I have heard some analysts say increasing energy prices are good, because it keeps the inflation rate up, which means the threat of deflation is lower. But this doesn’t sound right to me. I’m not an economist, but isn’t deflation – dropping prices – a symptom of the problem rather than the problem? The problem is reduced demand. So wouldn’t increasing energy prices work to further reduce demand, as people and businesses divert more and more of their spending power into paying the higher energy bills? And wouldn’t this make the problem worse instead of better?