I saw that headline and looked at the chart within it. There is more to the story though. Here's the data going back even further in time.
On the one hand, we haven't seen the 10-Year average inflation rate this low in 40 years. It could be argued that this is a black swan event.
On the other hand, we're actually not that far away from the average values and median values. It could be argued that there is nothing at all special about this era. We aren't even in the lowest quartile. If this was a test graded on the curve, we'd probably get a C-. That would hardly make it a black swan event, at least not yet.
I tend to think it is the latter situation. I remain deflationary. I think getting into the lowest quartile is still a distinct possibility. The Fed is certainly fighting deflation (or should I say postponing it?), but that just tells me where inflation naturally wants to go. That direction is down.
Quartile
first quartile (designated Q1) = lower quartile = cuts off lowest 25% of data = 25th percentile
Source Data:
St. Louis Fed: CPI-U
You are arguing a deflationary depression as seen in the 30's is a normal course of events that should be included in what one expects for long-term inflation rates. Yes?
ReplyDeleteWhat if one believes the 30's were an outlier and should not be included in what determines "normal". Where would average, median, 1st & 3rd quartiles lie then?
Of course by that reasoning, one could argue similarly for 76-86.
AllanF,
ReplyDeleteI don't think the chart does anything to help or hinder my deflationary outlook. I was mainly just trying to point out that where we are now is not all that far off of normal.
I think it could be argued (as you have) that the 30's and the 70's were both outliers. The 1st quartile is fairly effective at removing the Great Depression. The 3rd quartile is fairly effective at removing the 1970s. The 2nd quartile (median value) is therefore probably fairly representative.
I do not expect to see 1930s style deflation in the CPI, even if commodity prices crash again.
I do not expect a repeat of the 1970s anytime soon either.
That said, since I am deflationary and the last 8 months worth of CPI data have been flat, I do think we have a chance of slipping below that 2% 1st quartile line. All it would take is more of the same. Lower incoming CPI readings would be replacing higher CPI readings from 10 years ago (not that they were all that high back then either).
CPI Year over Year % Change
Thanks for the explanation.
ReplyDelete