Core Inflation Is Low and Stable

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.

Comments

[Balderdash:]

If you only weigh my skeleton, my weight hasn't changed in 10 years!

2008 Aug 21 03:54 AM

[abetterplace:]

TVA, the biggest producer of electricity in the Southeast, just approved a rate increase of 20%. Everything agriculture, with the exception of pork, has climbed immensely. Read the local newspapers all over this country and see how the local and state governments are falling way short on money. Not because their revenue's are short, but because of inflation.
If you cannot see we are in dire straights because of the runaway inflation, you must have your head stuck in the sand. Quit banking on reports and see for yourself what is happening.

2008 Aug 21 07:47 AM

[Umm, yeah:]

Garbage in, garbage out. How can you honestly use measurements which are measured differently today versus how they were measured back in the 70's?

2008 Aug 21 07:56 AM

[john s. gordon:]

inflation (stag or otherwise) is out of control. mark which ivory tower are u a resident of ?
> jack

2008 Aug 21 08:02 AM

[wetwillie:]

This is a economist??? No wonder we are screwed up.

2008 Aug 21 08:31 AM

[Danimal08:]

Too bad I can't live on core inflation when the cupboards are bear and it is 110 degrees outside. Get out of the ivory tower of theory and onto the street of reality!

2008 Aug 21 08:53 AM

[Elaine Supkis:]

Balderdash, that is the BEST remark yet! Love and and will use it on my blog.

All inflation graphs MUST show the various changes in tracking inflation. Otherwise, it is full of bullhockey. I used to be part of the annual inflation collection system whereby a Federal agent would come to my house and he and I would spend hours going over what I bought that year and how much it cost. I kept all my receipts for this purpose. He was the same man every year and we got to chat a lot about inflation statistics.

This was from 1975- 1982. Then, he ceased coming by. The first 'reform' of the statistics was launched! Since then, we have been inflicted with a goofy and worsening system that grossly undercounts real inflation.

Just like Japan is now doing. As inflation ravages the average Japanese, they get no recourse at all since the statistics refuse to reflect this.

2008 Aug 21 11:14 AM

[unimpressed...:]

Core inflation is a device invented by politicians to fool their constituents into believing that everything is under control, even as the ship of state is taking on water and sinking. How, in God's name, can anyone take, seriously, any analysis of inflation that ignores energy and food prices? Only, an economist and a politician could embrace such nonsense.

2008 Aug 21 01:49 PM

[Gary Meade:]

What planet do you live on...I want to live there too!

2008 Aug 21 02:52 PM

[ain't no fo...:]

I suppose if you were a bulimic pedestrian, a "free trade" advocate (haha, what a con that is!!!!) or a member of the RNC like the author sounds, life would be just swell in core inflation land... unless you realized that the government was indexing your social security payments off of that worthless metric... but not to worry, they'll have put a knife in social security long before most current workers (those under the age of 60 anyway) will ever get a chance to see it.

2008 Aug 21 03:01 PM

[whidbey:]

You are not helping the profession when you write such tripe as your post exhibits. Of course inflation, however defined, matters. What you are missing is the significance of headline v. core. Core inflation is not too significant to anyone but statisticians who want to contrast the series, (and you, of course). Your silly offering is a disgrace to professional economists (like myself.)

2008 Aug 21 03:12 PM

[Matt Blackman:]

It's only when the economic train is about to come off the tracks do we realize the folly of believing in biased government indicators and statistics. CPI and PCE etc are pretty useless indicators and from what I have observed have been reverse-engineered to give the results various government bureaus and agencies want us to think. Its all about getting re-elected (see tradesystemguru.com/co... )

Perry is clearly not a trader or serious investor nor does he track commodity prices or the real cost of living.

2008 Aug 21 03:32 PM

[Did U Think...:]

Stagflation:

- Anything that is generally bought on credit will get cheaper because it will increasingly have to be bought with cash.

- Anything generally bought with cash will increasing become more expensive because while Ben B is not inflating the money supply directly he is taking on OBLIGATIONS that will likely require a huge increase in the money supply going forward. When FNM and FRE are nationalized and 30% of their toxic waste defaults, the USD will be diluted in order to pay for it.

Count on it.

2008 Aug 22 01:12 AM

[String:]

Sounds like an adjenda.

2008 Aug 22 01:50 AM

[String:]

Sounds like an adjenda to me.

2008 Aug 22 01:51 AM

[lonie:]

Gold miners in the 60s made a profit on 35 dollar an ounce gold. Now they say it cost over 300 dollars to mine an ounce . That is about 8-9 times as much. Gold was 35 then , now recently around 800 an ounce . That is 22 times as much . All due to the worthless dollar and inflation.
So ,to me ,anyone that says there is very little or no inflation is full of bullshit ,that includes our government and the minions that hang on to it.
As on guy said ,elections are like going in a restaurant and the waiter says ; sir would you like a plate full of black labrador shit or a plate of golden retriever shit.

2008 Aug 22 05:13 AM

[Steven Hansen:]

Dr. Mark, i would agree that core inflation has been relatively flat when viewed from the cpi as it excludes food and energy. the knock on effects of food and energy onto the core inflation index is now just being felt. I am trying to grasp why you wrote this article as you know things are about to hit the fan.

2008 Aug 22 05:47 AM