Inflation

Below are two charts from the Federal Reserve Bank of St. Louis. The first shows the US Consumer Price Index for all urban consumers from 1913 through March. The second shows the same data from 1990. The U.S. has generally had a positive inflation level as measured by the government’s statistics. After the most severe bout of deflation since the 1930s, inflation is rising again. For the U.S. post-1913, inflation is the norm.

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US CPI 2011 March

US CPI 2011 March 2

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For comparison’s sake, the graph for the period from 1913 to 1934 is presented below.

US CPI Great Depression

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3 Comments
  1. asaxena says

    Percent change YoY might be more illustrative

  2. asaxena says

    Percent change YoY might be more illustrative

  3. Anonymous says

    Thanks Ed. Do you think this is a problem for our society? Many say this is the Fed’s fault and is not good. I am really not sure. What is your professional opinion?

    1. Edward Harrison says

      @hutrade:disqus in my view, the Fed isn’t wasn’t the cause of inflation here. If you look at the inflation line you can see the inflation deflation offsets were operating pretty much for the entire pre-war period of the gold standard. The 1913 price index starts at 10, balloons to over twenty before collapsing in the Great Depression to about 123 or 14. So in the entire pre-war period there was some inflation to be sure, but most of it was cancelled by deflation during recessions and the Great Depression.

      Starting in 1941 with the wartime stimulus the line kinks higher. I think this much to do with the wartime stimulus. The recession of 1948-49 was brutal – huge increase in unemployment and deflation to boot. This was followed by the dollar’s role at the center of the Bretton Woods standard where the line resumed it’s normal path. After the guns and butter policy in the 1960s and when the dollar’s tether to gold was relinquished, the line kinks higher yet again.

      To me, this speaks to fiscal policy and overheating more than anything else. What I am seeing is inflation driven by fiscal policy more than monetary policy,

  4. Anonymous says

    Thanks Ed. Do you think this is a problem for our society? Many say this is the Fed’s fault and is not good. I am really not sure. What is your professional opinion?

    1. Edward Harrison says

      @hutrade:disqus in my view, the Fed isn’t wasn’t the cause of inflation here. If you look at the inflation line you can see the inflation deflation offsets were operating pretty much for the entire pre-war period of the gold standard. The 1913 price index starts at 10, balloons to over twenty before collapsing in the Great Depression to about 123 or 14. So in the entire pre-war period there was some inflation to be sure, but most of it was cancelled by deflation during recessions and the Great Depression.

      Starting in 1941 with the wartime stimulus the line kinks higher. I think this much to do with the wartime stimulus. The recession of 1948-49 was brutal – huge increase in unemployment and deflation to boot. This was followed by the dollar’s role at the center of the Bretton Woods standard where the line resumed it’s normal path. After the guns and butter policy in the 1960s and when the dollar’s tether to gold was relinquished, the line kinks higher yet again.

      To me, this speaks to fiscal policy and overheating more than anything else. What I am seeing is inflation driven by fiscal policy more than monetary policy,

Comments are closed.

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