Why Today Is Different From the Inflationary 1970s 33 comments
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WASHINGTON (Reuters) - Soaring gasoline prices helped drive up overall U.S. consumer prices during May by the fastest rate in six months, but core prices remained tame, a government report today showed. But 12-month core prices advanced 2.3% as expected (see chart above).
Note that core CPI inflation (less food and energy, data here) has been below 3% now for 149 consecutive months, since January of 1996 (shaded area above). Also notice that there is a huge difference between the inflationary 1970s and today - in the inflationary 1970s (fueled by excessive money creation) ALL prices were rising simultaneously at double-digits rates, EVEN the non-energy and non-food items of the CPI. Today, except for energy and food prices, core inflation is contained, low and stable, as is growth in the monetary base, suggesting that the concern about inflation is well... inflated.
Also, compared to a recent peak close to 3% during 2006, the core inflation rate is lower today, and has been generally declining since late 2007.
Rising energy prices alone cannot cause inflationary increases in all goods and services, as the situation today suggests, with core inflation remaining low and stable despite rising energy prices. Keep in mind also that during the double-digit inflation in the U.S. during the 1970s, fueled by expansionary monetary policy, the German central bank demonstrated much greater monetary restraint, and inflation in Germany never exceeded 8% in any year during the 1970s and averaged only 5% during that decade (despite experiencing the same increase in world oil prices as the U.S.).
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1. The dollar has fallen against all major currencies.
2. The price of oil and its products has at least doubled in the past year.
3. The price of food has nearly doubled in the past two years.
All three phenomena are another way of saying "the US dollar is suffering from inflation".
dshort.com/inflation/i...
We don't yet have wage inflation, which creates an inflationary spiral. But the level of consumer suffering is indeed approaching the '70s.
yes, i said shelter...
one of the great ironies of declining housing prices is that only new buyers benefit but there are far fewer of them today than in the recent past when teaser interest rates and no money down mortgages drew millions into the market. many are now permanent exiles from the market, either having or will having lost their homes to foreclosure or becoming walkaways because the economics now work against them. notwithstanding recent declines, houses are still too expensive for many entering the workforce....partly because of anemic wage growth and loss of many higher-paying jobs to outsourcing but also due to more stringent lending standards which have eliminated many would be homeowners from the market. the bottom line is that declining home prices have helped the few but hurt the many. look for more downside. housing prices are still too high.
given the choice between rising nonwage inflation only or rising wage and nonwage inflation i'll take the latter. it might not be what the fed would like to see, but since when did the fed ever give a damn about the man on the street?
a personal note:
i sold my overpriced house in july 2007. i subsenquently rented an apartment on a 7 month lease but i moved when they tried to increase my rent by about 7 percent when the lease expired. the lease on my new apartment expires in august and i was just informed that my new rent will cost me 15% more. i have lived there a year. i'll move, of course, as much to deny them the privelege of screwing me as any rent i might save. don't count on experiences like mine to be reflected in the consumer price index. the feds like their numbers massaged.
Nevertheless, your point is well-taken; "owner's equivalent rent" occupies an absurdly large portion of the CPI relative to either real rents or the actual price of a house. No one seriously doubts that it understates price increases except perhaps our author; the only real controversy is one of degree. If real prices are rising by 5% a year, we're probably ok (the long bond is rapidly approaching that level). If they're rising by 12% a year, we're in big trouble because the bond and oil vigilantes simply don't have enough market power to force the issue that far.
I.E. the Core CPI.
However...if you're like me: If you regularly buy fuel, use transportation, need hospital services, eat food at home, pay tuition, require medical care, eat out, drink booze, and pay rent...
DONT TELL ME THAT THERE IS NO INFLATION!
It might be time to go back to school or at least down to the end of the street.
Get real, you are being suckered.
Give me a break, G Bush and a unfiied republician congress during his first term expanded spending more than any administration in history, perhaps more than all combined. Give your comment on that, remember the quote from Bush "I want the prescription bill on my desk now". One thing mr pres- you didn't fund the bill- you passed the cost to our kids. You talk about Obama. I would rather have 'tax and spend' than "tax cut and spend". The latter passes the cost of social programs to our kids. It is the republican way
This has been a credit card administration.
Gold crashing as well as real estate. We are deflating as Japan did during the 1990s and we did in the 1930s. When debt is removed (what is happening now) its called deflation.
Most of these people dont beleive the government and are looking for a man on horseback (a Hitler).
Jakester is right. The rest of these people must be given an F. I'm sure none of them are in your classes.
On the other hand, high inflation made it easier to pay off fixed rate mortgages. A 6% fixed mortgage looks cheap when salaries are rising to keep up with inflation.
An ordinary insured S&L account payed 5%, certificates of deposit (CDs) payed more and money market mutual funds payed much more.