Historically low price inflation (until 2021)


For nearly 30 years until 2021, price inflation remained relatively low. That represented the longest low-inflation period over the more than 70 years that U.S consumer prices have been tracked.

The inflation jump in 2021 and 2022 falls well short of the double-digit inflation surges of the 1970s and early 1980s. At the same time, this latest jump is higher than the most recent peak in 1990.

The data track record suggests that the inflation surge is unlikely to persist for the long term. What may be more important is whether the average rate of inflation going forward is higher—given some amount of inflation fear that remains now that it has been awakened from a 30-year sleep.

Here is a bit of background about the two inflation measures used here….

The Consumer Price Index (CPI) is calculated by the U.S. Bureau of Labor Statistics. The Personal Consumption Expenditure (PCE) index is calculated by the U.S. Bureau of Economic Analysis.

One reason the Fed prefers the PCE measure is because it accounts for substitution effects as prices change. In contrast, the CPI’s “fixed basket” does not account for substitution. Inflation tends to be slightly lower by the PCE measure because of these substitution effects.



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