Core Inflation Is Low and Stable

by: Mark J. Perry

Brian Wesbury asks:

How can monetary base growth slow for seven straight years without pushing inflation down? If you agree with Friedman, it should have caused a decline in inflation, but every measure of inflation is higher, not lower.

What about annual core inflation? It's been flat for 10 years now at about 2%, see chart above, is lower now than it was several years ago, and less than 50% of the long-term 4.58% average.

As I suggested before on several posts, unless and until core inflation rises like it did in the 1970s (see chart above), inflation can't be "a clear and present danger," as Brian suggests.

The chart above shows annual inflation since 1973, calculated from the BEA's quarterly personal consumption expenditures price index, less food and energy (data here), showing 15 years of extremely stable inflation at around 2%. In fact, it's almost as if the Fed has been following a 2% inflation target since 1993 (based on this price index), and provides more evidence that core inflation is low and stable, and nothing like the inflationary 1970s.