There has been a lot of concern lately about inflation, including a WSJ editorial today by Gerald O'Driscoll (former VP of the Dallas Fed) titled "Inflation Alert."
There have also been numerous comparisons recently of today's
inflationary environment to the inflation and stagflation of the 1970s,
including in today's WSJ. What do the inflation data show? Below are graphs from the St. Louis Fed
for five different measures of inflation from 1970-2008, calculated as
the annual percent change from the same period in the previous year.
GDP Deflator Inflation:CPI Inflation: All itemsCPI "Core" Inflation: All items less food and energyCPI Inflation: Food
CPI Inflation: EnergyComments:
1. GDP Deflator inflation (top graph) has actually been generally declining for the last two years, and was higher on average in 2004, 2005, 2006 than in 2007.
2. Although CPI (all items) inflation (second graph above) is rising, it's still at or below several peaks in 2005 and 2006, and still doesn't look anything like the 1970s inflationary levels.
3. Likewise, core CPI inflation (third graph above) is below peak levels in 2006, below the entire decade of the 1990s, and doesn't remotely resemble the inflationary levels in the 1970s that were 2 to 5 times higher than today for core CPI.
4. CPI Food inflation (fourth graph above) is certainly high and rising, but still in line with the levels of the 1980s and 1990s, and far below the double-digit levels of the 1970s, and way below the peak of 20% food inflation in 1973, which signaled the significant inflationary pressure at the beginning of the stagflation era. Also, much of today's food "agflation" is probably caused more by distortionary government subsidies of ethanol than by easy monetary policy.
5. CPI energy inflation is also certainly high, but at or below peak energy inflation levels of 2000, 2003, and 2005, and way below the 30-40% peaks in the 1970s.
Bottom Line: If there is any 1970s-like stagflationary pressures in today's economy, it sure isn't showing up in the inflation data. At least not yet.