Very interesting set of charts looking at Consumer Prices from The Chart Store. Over the course of 12 post WW2 business cycles, the following shows the periods of  Inflation.

Two things worth noting: The current cycle versus the composite of all prior cycles is relatively modest. This suggest that inflation is currently tame.

However, as the same chart shows, it has begin to move higher — and that raises concerns of increased inflationary pressures in the not-too-distant future.

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Click for larger chart

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The following chart suggest rising consumer inflation expectations:

Category: Consumer Spending, Inflation

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.

14 Responses to “Breaking Down CPI vs Prior Inflation Cycles”

  1. constantnormal says:

    Isn’t this just another case of reversion to the mean?

  2. wsm3 says:

    The more important question is whether the inflation periods featured here are apples-to-apples. Since the inflation methodology of today is vastly different than back then, I suspect the comparison is thusly flawed.

  3. twsf says:

    Yes, CPI is calculated very differently now, which makes these charts less useful than at first appearance.

  4. ewmayer says:

    Good point, wsm3 – the government has massively pollyanna-ized most of these kinds of stats over the past 30 years.

    And even were the numbers to be believed, adding a second chart of average-wages-per-person would be useful.

    (Note: not wages per household, since average household size has changed considerably over the decades, and not per *working* person either, since we want to gauge total-wage-base-supported demand against prices).

    But the price for regular self-serve gas at my local Valero station did drop 2 cents overnight, donw to $4.159/gallon this morning. Highly economically stimulative, that. I’m sure the fact that it was more than $1 lower at this time year is not inflationary, but rather “reflective of the strengthening global recovery.”

  5. socaljoe says:

    “The current cycle versus the composite of all prior cycles is relatively modest. This suggest that inflation is currently tame.”

    To me it suggests CPI is calculated differently today than in prior cycles.

  6. socaljoe says:

    How would the transcript of a mediocre student look if he were allowed to grade his own performance?

  7. econimonium says:

    It is just amazing to me how many people will look at a graph and find a way to tell you that it doesn’t say what it so plainly does. More faith-based analysis at work. Inflation isn’t how much you pay for fruit or how much gas is *right now*. Boy, very few people would pass a class from me, that’s for sure.

  8. plantseeds says:

    CPI is sooooo last century man. Chained CPI is where it’s at.
    http://data.bls.gov/cgi-bin/surveymost?su
    http://www.bls.gov/cpi/cpisupqa.htm#Question_1

    “..of increased inflationary pressures in the not-too-distant future”
    I’m not worried, we’ve got the Fed.

  9. KJ Foehr says:

    In the 1970s (which, in my mind, was really just one long inflationary period rather than two, but that is irrelevant) it was said the cause of inflation was “too many dollars chasing too few good”.

    Enter Reagan and supply side economists: they said, “OK, then we will increase supply by taking the fetters off business and reducing taxes to free-up capital, increase productive capacity, and increase the incentive for profit. (All of which benefits business and the wealthy; but, not to worry, the prosperity will “trickle down” to the poor, they said. They were half right.) As a result, we had a better balance of dollars and available goods. So inflation was quelled and interest rates trended lower for 30 years.

    Along the way, in keeping with the growing belief in free-market economic philosophy, we also established free trade with many poorer nations and even bestowed most favored nation trading status on China. (Why? To exploit lower labor costs: human rights abuses and a long-standing hatred of communism was trumped by corporate greed, imo. Surprised? You shouldn’t be; money nearly always trumps principle it appears to me.) So now there are several more countries in the world whose citizens are able to enjoy consumption, conspicuous and otherwise, just like us in the USA.

    So what? So now supply side economics can no longer protect us from inflation because the problem is no longer too many dollars chasing too few goods; the problem is too many dollars chasing too few raw materials / commodities. Supply side worked when the problem was only inadequate production, but now the problem is inadequate resources to supply the expanded level of production.

    Too many people around the world are now buying cars, gas, grain, etc., and even though there is excess productive capacity worldwide, there are also limited resources to supply that production. The result? Rising commodity prices and eventually higher prices for everything made with those commodities, which we saw even prior to the Great Recesson with metals and oil.

    Then, to make things much worse, along comes Ben who began printing dollars by the hundreds of billions in 2008 in an attempt to spur investment and demand (i.e., save us from economic pain), and that of course causes billions more dollars to chase commodities in addition to those from the BRIC and other rapidly delvoping countries!

    QE — “The US Federal Reserve held between $700–$800 billion of Treasury notes on its balance sheet even before the recession. In late November 2008, the Fed started buying $600 billion Mortgage-backed securities (MBS). By March 2009, it held $1.75 trillion of bank debt, MBS, and Treasury notes, and reached a peak of $2.1 trillion in June 2010. Further purchases were halted since the economy had started to improve. Holdings started falling naturally as debt matured. In fact, holdings were projected to fall to $1.7 trillion by 2012. However, in August 2010 the Fed decided to renew quantitative easing because the economy wasn’t growing robustly. Its goal was to keep holdings at the $2.054 trillion level. To maintain that level, the Fed bought $30 billion in 2-10 year Treasury notes a month. In November 2010, the Fed announced it would increase quantitative easing, buying $600 billion of Treasury securities by the end of the second quarter of 2011.”
    http://en.wikipedia.org/wiki/Quantitative_easing

    .
    Ben says, there is no such thing as a free lunch, except for QE!

    I believe we are seeing the not so hidden costs of that “free lunch” now. The question now is, how far will it go, when will it end, and what happens after that?

  10. Bill Wilson says:

    It would be nice to see a chart of the core rate of inflation versus inflation of food and gasoline. My guess is that food and gasoline lead the core rate.

    I think the FED is in a box. They will have to allow or even engineer a sell off in assets if they are going to keep us out of an economy with higher prices and lower wages.

  11. ewmayer says:

    econimonium wrote:

    “Inflation isn’t how much you pay for fruit or how much gas is *right now*”

    Right – it’s how much you pay for ground chuck right now, because top sirloin has gotten too expensive. It’s how much an iPhone 1 would sell for today, because the technology has gotten so much better. And it’s not how much you actually paid for that house, it’s how much the folks in the complex next door pay in rent.

    What classes do you teach, “professor”? Rational Markets 101? Advanced Topics in Currency Debasement? Wealth Effect and Trickle-down Theory?

  12. carpediem0496 says:

    Some of the implications of the huge increase in the monetary base as a result of QE and how it relates to inflation is discussed in the article referenced below. Key relationships, policy alternatives and challenges are highlighted.

    The Fed is on a tightrope with no room for error. It has already changed accounting rules to maintain the illusion of solvency if interest rates rise. (On a mark-to-market basis which the Fed does not follow, a 1% increase in rates will wipe out all of the Fed’s equity. In addition, the portfolio is unhedged because derivatives are outside of the Fed’s charter as I understand it.) The Fed is leveraged at 50:1, making Lehman, the investment banks at the peak in 2007 and hedge funds look like amateurs.

    Charles Plosser and the 50% Contraction in the Fed’s Balance Sheet (http://www.hussmanfunds.com/wmc/wmc110411.htm)

    My guess is that the Fed will err on the side of inflation when it tries to extricate itself from QE. We could easily end up with a long period of stagflation.

  13. socaljoe says:

    Many people mean different things when the refer to inflation.

    Before you have a discussion on inflation it essential to agree on a common definition.

    If you think of inflation as a measure of how much goods and services are going up in price, I think it is important to recognize that everyone has their own personal inflation rate which depends on your purchasing habits. For example, if your spending is primarily for food and fuel, you are probably suffering from a fairly high rate of inflation. If you’re planing to buy a computer, TV, or house, you’re probably benefiting from mild deflation.