Wednesday, September 16, 2009

The Ongoing Dramatic Inflation Rate Increase

Between December 2008 and August 2009, the seasonally unadjusted U.S. consumer price index increased 2.7% or 4% at an annualized rate. Yet the yearly change was still -1.5%, due to a drop in the CPI of more than 4% between August 2008 and December 2008. But that number for the 12 month change was up from -2.1% in July and as the drop late last year is removed from the 12 month comparison during the coming 4 months, consumer price inflation will return to levels way above zero, and likely also above the official or unofficial 2% target pursued by most central banks.

A similar trend can be seen in the euro area, where the inflation rate rose from -0.7% in July to -0.2% in August. This trend will likely also be seen in other countries, though less dramatically (or in some cases not at all) as they for example in the cases of Sweden and Poland saw their currencies plummet in value late last year, but has seen it rise dramatically in value this year. Also, some countries with fixed exchange rates and deep economic crisis, most notably the Baltic countries, are also likely to see continued relative disinflation, limiting or preventing any absolute reinflation.


Blogger The Arthurian said...

Interesting thoughts on U.S. inflation.

Regarding the euro area you say "the inflation rate rose from -0.7% in July to -0.2% in August." It just shows how commonplace inflation has become -- how natural it now seems to us -- when you call a 0.2% price drop "inflation."

6:32 PM  
Blogger Celal Birader said...

Hi Stefan,

How do you square a rising inflation with the decreasing money supply which you reported recently on your blog ?


9:30 PM  
Blogger stefankarlsson said...

Celal, money supply changes affect prices with a time lag. And as you could see in that post, money supply growth was very high in late 2008 and early 2009.

10:01 PM  
Blogger Aragon said...

Here is the annual percentage growth rate of both MZM and CPI during last five decades.

1960s 5.0 2.6
1970s 6.1 7.5
1980s 9.6 5.1
1990s 7.5 2.9
2000s 8.4 2.6

When you look at the date you are a little bit confused because MZM grew faster in the "moderate inflation" 1980s than in the "stagflation" 1970s. In fact, it is strange that in the 1970s MZM increased at slower rate than the inflation.

[M]oney supply changes affect prices with a time lag.

Could the time lag be the explanation for this phenomenom or can this all be explained because of collapsing trust into dollar or some alternative explanation?

Maybe this should be posted as a separate question but as it has at least some relevance with this subject I'll post it here anyway.

4:22 PM  
Blogger stefankarlsson said...

Aragon, even assuming your numbers are right, they are no mystery. Money supply doesn't just affect consumer prices, but also asset prices. During the 1970s the stock market was in a bear market, while it was in a bull market in the 1980s

9:31 PM  

Post a Comment

<< Home