Wednesday 24 February 2010

US Inflation – February 2010 Update

The above chart shows the Consumer Price Index (CPI-U) to January 2010 courtesy of the Bureau of Labor Statistics. Year on year inflation has fallen from 2.7% in December ’09 to 2.6% in January ‘10. Annualising the last 3 months and inflation is running at 0.0% and annualising the last 6 months has inflation at 1.2%. It looks like the US has their deflation ‘problems’ under control for now.

I have taken the liberty of dividing the chart into two sections. The first red section runs from 1871 to 1932 and the second blue section runs from 1933 to present day. I chose this break point as during 1933 the US officially ended their link to the gold standard. I think this chart demonstrates a point that government will always choose to inflate debt away at the expense of savers if given the chance. They could not do this under the gold standard.

To demonstrate this arithmetic mean inflation rates have been:
1871 to 1932 CPI = 0.5% with deflation being a regular occurrence.
1933 to Present CPI = 3.7%
The CAGR CPI from 1871 to present has been 2.1%.

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