I’ve sent this chart once before but felt the need to do it again so we can visualize the CPI price level and what its done over the past 60 years. It puts into context why some scratch their heads about the big fears of deflation that is causing the Fed to act as they are in terms of money printing. As can be seen, the cost of living, aka CPI, is down just .7% from its all time record high.

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Inflation/Deflation in context”

  1. JesseLivermore says:

    Obviously, it’s not the absolute level of prices which is important, but the rate at which they change. It’s as if you were driving your family from New York to L.A., and took a wrong turn in East St. Louis. When your kid complains, you tell her not to worry, because you’re *way* closer to L.A. than you were two days ago.

  2. rimaye says:

    What is your point, exactly? This is simply the law of geometric change in action — it applies to anything that compounds. From 1990 to 2009, the annual rate of inflation was around 2.6%. Unless you stuffed it in a mattress, any money you had in 1990 probably didn’t experience much of a decline in purchasing power. If your argument is that wages have not kept pace with inflation, this is an issue of distribution, since labor productivity has roughly kept pace with inflation over the past 20 years. In other words, companies kept increased productivity in the form of profits, rather than passing it on to workers.

    I’m tired of all the inflation fearmongering based on these types of graphs, and the related assertion that “the dollar has lost 75% of its purchasing power in the last 30 years.” That’s just the flip-side of asserting that you’re 400% richer because your money in your bank account grew at a nominal rate of 2.5% a year. Both are irrational positions.

  3. abkaplan says:

    If I learned anything from Econ 101, it is this: 1) inflation is a rate of change 2) a little inflation is OK as long as it’s low and fairly steady. Absolute levels of inflation (provided by the CPI) are not important for the here and now, unless you enjoy griping about fact that “In my day, XXX’s price was 10 times less than today!” The change in the inflation rate (monetary acceleration, for lack of a better phrase) does, especially when compared to our expectations for inflation.

    As you can see in the graph, from the early 80′s until the turn of the century, inflation held mostly at a steady rate – a tribute to the Volcker-Greenspan policies and actions. We have since seen an spike in CPI, no doubt fueled by the MBS-backed asset price bubble, and then true deflation when the bubble burst.

    With the recession done, we’re barely back to inflation, and without a robust recovery we are certainly at risk of plunging back into deflation. That, I believe, is why Bernanke is so concerned and isn’t afraid to start the printing presses…

  4. cognos says:

    Could this guy BE a bigger idiot?

    Why do you publish anything from him?

    If we had “0% inflation” we would have 1% 10-yr interest rates (see japan). So the last 2yrs of flat price level have been a BIG deal. Idiot.

  5. Here is a more revealing graph of inflation.

    Rodger Malcolm Mitchell

  6. cognos says:

    That link from RodgerMitchell is excellent.

    Thank god for the few quality academics, economists, Fed governor doing simple, smart work. So many charlatans and quacks.