A Long-Term Look At Inflation

A Long-Term Look at Inflation
By Doug Short
September 15, 2011


The September 2011 Consumer Price Index for Urban Consumers (CPI-U) released today puts the July year-over-year inflation rate at 3.77%, which is fractionally below the 3.96% average since the end of World War II.

For a comparison of headline inflation with core inflation, which is based on the CPI excluding food and energy, see this monthly feature.

For better understanding of how CPI is measured and how it impacts your household, see my Inside Look at CPI components.

For an even closer look at how the components are behaving, see this X-Ray View of the data for the past five months.

The Bureau of Labor Statistics (BLS) has compiled CPI data since 1913 (BLS historic data). My long-term inflation charts reach back to 1872 by adding Warren and Pearson's price index for the earlier years. The spliced series is available at Yale Professor Robert Shiller's website. This look further back into the past dramatically illustrates the extreme oscillation between inflation and deflation during the first 70 years of our timeline. Click here for additional perspectives on inflation and the shrinking value of the dollar.

Alternate Inflation Data

The ShadowStats Alternate annualized rate of inflation is 11.35%.

The chart below (click here for a larger version) includes an alternate look at inflation without the calculation modifications the 1980s and 1990s (Data from www.shadowstats.com).

On a personal note, the more I study inflation the more convinced I am that the current BLS method of calculating inflation is reasonably sound. As a first-wave Boomer who raised a family during the double-digit inflation years of the 1970s and early 1980s, I see nothing today that is remotely like the inflation we endured at that time. Moreover, government policy, the Federal Funds Rate, interest rates in general and decades of major business decisions have been fundamentally driven by the official BLS inflation data, not the alternate CPI. For this reason I view the alternate inflation data as an interesting but ultimately useless statistical series.

That said, I think that economist John Williams, the founder of Shadow Government Statistics, offers provocative analysis on a range of government statistics. While I do not share his hyperinflationary expectations, at least not based on current economic conditions, I find his skeptical view of government data to be filled with thoughtful insights.