Antony Mueller asks: Are central banks up to their job by now? Have they learned how to interpret statistics correctly? Have they gained true independence? A superficial answer may say yes. But a closer look shows that the awful turning point for the U.S. monetary system can be clearly defined in 1914 when the US central bank began its operations. We still live in the age of inflation. [Full Article]
Source link: http://archive.mises.org/3206/the-anquish-of-central-banking-2005/
The Anquish of Central Banking 2005
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What is that graph? Am I to understand that the US Inflation Rate is almost 200 percent? What is CPUSAM (the red line)? Consumer Prices United States Austrian Money? I went to the URL shown by the side of the graph http://www.globaldata.com, and got advertising unrelated to macroeconomic data.
If my guess as to the series is correct: (a) the graph is mistitled; and (b) it looks sort of like about 1982 = 100. Could anybody help here? I trust this is NOT another “hockey stick.”
I too was immediately struck by the misleading (to be charitable) character of the graph. First of all it is most certainly not “Inflation Rate.” It something closer to “Price Level”
Secondly, the choice of a linear scale for a series we expect to exponential is misleading, especially for such a long time duration. Even if we had 1% constant inflation over the entire period, it would still have the concave upward, “heading for the moon” kind of appearance.
Thirdly, to say that the slowdown in inflation since the 60s and 70s is insignificant is quite absurd. I wonder if the author lived through those periods? Life under 10+% annual inflation is radically different from life with 3% inflation.
The graph is neither special nor uncommon. It may only appear “shocking” to those who believe that we have “price stability” or to those who think that inflation has always been with us.
The data come from the U.S. Bureau of Labor Statistics and represent the consumer price index, the common official measure of inflation. As a price index it allows long-term comparisons and thus renders a more accurate picture than annual inflation rates.
An index allows rapid identification of changes over a longer period of time. If you have a price index of 125, e.g., for a certain year, this informs that an increase of 25 per cent has taken place in relation to the base year.
A price index also allows rapid calculation of “real dollar values”. If you have a current index value of 200 for example, this tells immediately that the current dollar has now a real value of 50 cents compared to the base year.
In this sense the graph shows the “U.S. Inflation Rate” over the mentioned period of time.
For more long-term data see: “www.globalfindata.com”
Antony Mueller
I agree that the y-axis label is misleading. This is the CPI versus time, not the rate of change of the CPI versus time. The derivative of this graph would be the rate versus time, and it would basically look like a tiered function, with 1875-1913 being near zero rate of inflation, 1913-1971 averaging about 1.6% per year, and 1971-present averaging about 4.7% per year.
Seems like Mueller forgot that unchecked govt spending is the real cause of uncontrollable inflation. Central banking and dumping the gold standard allows it. – comments?
Antony,
I don’t think anyone commenting here is “shocked” by what the graph represents. Nor does it matter that it is neither special or uncommon.
It is simply mis-labeled. Could you please adjust it to say CPI, and not inflation rate? Though they are related, surely you realize they are two different measurements.
Otherwise when I show it to folks, they won’t be able to shoot the messenger and ignore the message. And I won’t have to go to a lot of trouble unwinding the confusion this represents.
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