Popular Posts
Annual Inflation
This chart plots the Current Annual Inflation Rate starting in January 1990. The longer term trend (in Yellow) is falling. Note the peak at 6.29% in October of 1990.
Is Inflation Rising or Falling?
Check this Chart to find out
 |
|
|
See Current Commentary below for an explanation of what this chart is telling us about inflation now.
See the current MIP to read more about what we are predicting for next month and next year. Remember our projections are based upon sound mathematical formulas not on simply extending the current trend forever.
How to Read this chart:
The black wavy line represents the actual annual inflation rate as calculated from the Consumer Price Index (CPI-U) published by the U.S. Bureau of Labor Statistics. Each month the oldest month drops out of the calculation and a new month is added. (see Current Commentary Below).
The CPI creates a standard to compare against to help us determine the real purchasing power value of a Dollar because the level of prices is constantly changing due to increases (or decreases) in the money supply.
The red line is a 12 month moving average, meaning it is the average of the annual inflation rate as measured during the last 12 months. If the red line is pointing up we are in an inflationary trend. When the red line is pointing down we have "disinflation" i.e. prices aren't increasing as fast as they were before and when the black line falls below zero that is deflation (prices are actually falling).
If the inflation rate is simply trending down we call it "disinflation". An example of disinflation would be if the annual inflation rate is 3.2% the first month, 3.0% the second month and 2.8% the third month. See What is Disinflation for more information.
If the inflation rate crosses below 0%, we turn from inflation to deflation since by definition "deflation" is a negative inflation rate. This is a relatively rare event, the last time that happened (before 2009) on an Annual Basis (prices were lower than year ago) was in 1955, although we have had deflation for a single month on a more regular basis (prices fell compared to the previous month). See What is Deflation? for more information.
By definition, whenever a line crosses through its moving average a change in direction is indicated. So when the black line crossed up through the red line in August of 2002 that indicated that inflation was no longer falling (disinflation) but was now in a uptrend (inflation).
The yellow long term trend line indicates we had been in a downtrend since the peak in 1990. The key point came in June of 2004 when the index crossed above the yellow line confirming the end of the inflation downtrend. So although the short term downtrend ended in August 2002 the long term disinflationary trend ended in June of 2004.
At 0% inflation the general level of prices of a basket of goods and services would stay the same from year to year.
Recent Inflation History:
In mid-2002, at the depth of the recession, after registering a new low of just over one percentage point (1.07%), the inflation rate crossed back up through its moving average, indicating that the disinflationary period ha d ended and inflation was increasing again. (See Brown Trend Lines).
From there the inflation rate began a 6 year up trend, with consumer prices generally increasing primarily due to the central bank increasing the money supply.
The one exception to this monetary policy caused increase was a supply disruption due to hurricane Katrina (Katrina Spike)which was promptly followed by a corresponding decline in the inflation rate bringing the average level of inflation over a slightly longer period back within the upward trend. Following the Katrina spike was the oil spike. Which may also have brought the inflation rate to an artificial high (i.e. not based on monetary factors but supply factors) so as oil prices fell back to reality the inflation rate also began falling (disinflation), in order to return the system to balance around the linear regression line.
The blue trend-line is called a "Linear Regression" line and it shows the trend over time for the entire period. A linear regression line mathematically divides the chart so that exactly half the volume is above the line and the other half is below.
As we can see, the trend over the period of this chart (since 1990) is declining slightly (the Blue line is tilted downward).
We can also see the relationship between a rise in the prices of food and energy as oil prices drove the inflation rate up to a peak of 5.6% in mid-2008 and then as the Oil bubble burst it started the downward trend.
Finally, the housing market and the stock
market crashed reducing the money supply,
creating a liquidity crisis thus plunging
us into a period of deflation where prices
were actually lower than the year before,
reaching a deflationary low of
-2.1% in July of 2009.
Since then Inflation blipped up as a result of the Trillion dollar stimulus but then began slowly falling. Along came QE2 the second of Bernanke's monetary stimuli and inflation has picked up again and crossed above its moving average and above the blue linear regression line and took it out of the orange downtrend heading back toward the brown up trend. For more information See: What is Quantitative Easing?
The average annual inflation rate for the entire period since 1913 has been 3.24% per year
See Current Commentary below.
Current Commentary
Updated 5/15/2012
Annual Inflation:
Monthly inflation for April 2012 was 0.30% which was considerabley lower than April 2011 which was 0.64% so as the higher number fell out of the calculation the Annual Inflation rate fell from 2.65% to 2.30%. But since the Bureau of Labor Statistics focuses on the "Seasonally Adjusted inflation rate" they are saying the inflation rate was the same as last month.
Here at InflationData.com we like to take our inflation numbers straght with as little adjustment as possible so we only look at the non-adjusted numbers. Even then many people believe that the "Official Government numbers" are fudged. See Can We Trust Government Inflation Numbers? and Is the Government Fudging Unemployment Numbers? and Employment vs. Unemployment for more evidence the Government is fudging the Unemployment numbers.
Last month, monthly inflation for March 2012 was high at 0.76% but not as high as March 2011 which was an astounding 0.98% so the Annual Inflation rate fell from 2.87% to 2.65%.
If we anualized the current monthly 0.30% it would result in an annual inflation rate of 3.6%. However, if we annualized last month's 0.76% that would result in 9.12% annual inflation.
So far this year:
Monthly Inflation was high at 0.44% for January and February and it jumped up to 0.76% for March and then fell to 0.30% for April. Historically, inflation seems to be higher the first half of the year and then lower or even negative the second half. We have to go all the way back to 2003 to find a single negative month in the January through April months. While the second half of almost every year has at least one negative month.
As a matter of fact, in the months since January 1954 there have been 13 negative months in January through June months and 46 negative months in the July through December months. So it appears that the majority of inflation occurs in the first half of the year and then moderates for the second half. One possible explanation is that during the fourth quarter many stores hold massive sales (think Black Friday) to reduce inventory before year end.
If this pattern continues to hold we could be in for another another deflationary period as Robert Prechter contends. So far in 2012 in the first 4 months of inflation we have had 1.96% inflation. In 2011 the last four months of the year had -0.39%.
If we look at only October, November and December, since 2001, there have been 8 deflationary 4th quarters and 3 inflationary 4th quarters. In 2008 the fourth quarter was -3.91%. Which was exceptional due to the liquidity implosion but 2006 (a boom year) still had a negative fourth quarter of -0.54%. The average for the all 4th quarters since 2001 was a deflationary -0.56%. So the next few months (through September) will indicate how inflationary 2012 will turn out. See Robert Prechter's free report Why Deflation Is the Biggest Threat to Your Money Right Now.
Monthly Inflation:
| Monthly Inflation Rate Table | |
| Month | Monthly Inflation |
|---|---|
| January 2010 | 0.34% |
| February 2010 | 0.02% |
| March 2010 | 0.41% |
| April 2010 | 0.17% |
| May 2010 | 0.08% |
| June 2010 | -0.10% |
| July 2010 | 0.02% |
| August 2009 | 0.14% |
| September 2010 | 0.06% |
| October 2010 | 0.12% |
| November 2010 | 0.04% |
| December 2010 | 0.17% |
| January 2011 | 0.48% |
| February 2011 | 0.49% |
| March 2011 | 0.98% |
| April 2011 | 0.64% |
| May 2011 | 0.47% |
| June 2011 | -0.11% |
| July 2011 | 0.09% |
| August 2010 | 0.28% |
| September 2011 | 0.15% |
| October 2011 | -0.21% |
| November 2011 | -0.08% |
| December 2011 | -0.25% |
| January 2012 | 0.44% |
| February 2012 | 0.44% |
| March 2012 | 0.76% |
| April 2012 | 0.30% |
|
Blue indicates current components of the Annual Inflation Rate Red indicates Deflation (falling prices)
-0.50% monthly = 6% Annual Deflation |
|
By looking at the monthly inflation rate we can see the various components that make up the annual inflation rate.
The annual inflation rate is made up of the 12 most recent monthly rates. So when a small or negative (deflation) monthly rate is replaced by a large positive monthly rate we can see a significant jump in the annual inflation rate in a single month. Conversely if a large monthly inflation rate is replaced by a smaller one inflation will decrease.
February 2011 had a monthly inflation rate of 0.49% which was replaced by a 0.44% rate for February 2012 so the Annual inflation rate stayed virtually the same.
In early 2011, we saw a fairly large 0.41% monthly rate for March 2010 be replaced by an absolutely huge 0.98% for March 2011 which was replaced by a very large 0.76% in March 2012 but the Annual inflation rate in March 2012 fell from 2.87% to 2.65%.
April 2011 had a 0.64% so the majority of the annual inflation occurred in the first half of 2011 and April 2012 was smaller at 0.30%.
See the current MIP to read more about what we are predicting for next month and the next year.
You may also be interested in knowing how to Calculate the Inflation Rate . Or you can simply use our Inflation Calculator to do the calculations for you. More Inflation Calculators.
To calculate how much purchasing power you would lose at other rates go to our Compound Inflation Calculator aka. Retirement Planning Calculator and you can see how devastating 6% or 10% can be to your retirement nest egg.
Complete list of monthly inflation rates since 1913
How much do you need to earn next year to keep up with inflation? See our Salary Inflation Calculator to find out.
Has this Chart been helpful? We appreciate your feedback.
Other Articles:
Stock Market- Stock Trends by Month
Rising Food Prices- Agflation- What is it?
Velocity of Money:
Inflation and Velocity of Money
Velocity of Money and Money Multiplier
Also:
