Annual Inflation

Is Inflation Rising or Falling?

Check this Chart to find out

This chart plots the Current Annual Inflation Rate  starting in January 1990. See the longer term trend (in Yellow).  Note the peak at 6.29% in October of 1990.  

See Current Commentary below for an explanation of what this chart is telling us 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 line represents the actual inflation rate as calculated from the Consumer Price Index (CPI-U).

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 last 12 months. Each month the oldest month drops out of the calculation and a new month is added.  (see Current Commentary Below).

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 downtrend.

At 0% inflation the general level of prices of a basket of goods and services would stay the same from year to year.

If the inflation rate crosses below 0%, we turn from inflation to deflation since by definition  "deflation" is a negative inflation rate. The last time that happened on an Annual Basis (for a whole year) was in 1955, although we occasionally have a deflationary single month. 

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.

In mid-2002, 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 had ended and inflation was increasing again. 

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 increase was a supply disruption due to hurricane Katrina 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.

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).

Finally, we see the relationship between a rise in the prices of food and energy as oil prices drove the inflation rate up to a  a peak of 5.6% in mid-2008 and then as the Oil bubble burst prices deflated to a level equal to the previous low of 1.07%.

The average inflation rate for the entire period since 1914  has been 3.43% per year

Current Commentary-

The average annual inflation rate dropped like a rock again this month. Last month's drop was touted as "the largest monthly drop on a seasonally adjusted basis since 1947 when the Bureau of Labor Statistics first  started tracking seasonal adjustments".

What are they going to say this month when it is almost twice as large?  Largest drop since last month?

 The annual inflation rate fell from 5.6% just a few months ago to an annual inflation rate of 1.07% this month.  This is tied (exactly) with the annual inflation low in July of 2002.  But over the last six months we have had DEFLATION.  Prices have fallen 3.88% over the last six months.  

Is this fall in the general price level a good thing? You might ask.  Well, I kind of like the fact that things are getting cheaper.

In the old days (prior to government meddling in the money supply) like the 1800s.  Deflation was the norm as productivity increased things got cheaper to produce, prices went down, wages went up and everyone was richer.

Robert Prechter of the Elliottwave Theorist is actually projecting that we will be entering a period of deflation.  To read his free report on on Why we are headed for Deflation Click Here.

So what is so bad about that? But today in the wake of massive Central Bank (the FED) intervention and massive credit creation, they are worried about deflation and have begun a policy of monetary expansion of historic proportions to correct it. Because the current system is a house of cards built on credit and the deflation is not the result of increased productivity but decreased credit.

So the FED is fighting the implosion of credit by injecting massive amounts of money into the system rather than allowing the system to return to its natural state.

Olivier Garret, CEO of The Casey Report on the other hand believes that all of this massive inflation in the money supply will result in a hyperinflation.  See Why the Bailout Will Result in Hyperinflation.

Also see Elliotwave article Do You Know how to Preserve Your Wealth? for more information on investing for safety.

See the current MIP to read more about what we are predicting for next month and next year.

You may also be interested in knowing how to Calculate the Inflation Rate .

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.

 Click here for a larger image of the Annual Inflation chart.

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.

Disclaimer:

At InflationData.com we are not registered investment advisors and do not provide any individualized advice. Past performance is not necessarily indicative of future performance and future accuracy and profitable results cannot be guaranteed.

(click on chart for larger image)

Subscribe to our FREE monthly E-Zine and we will notify you when this chart has been updated!

Webmasters if you would like to use any of our charts please check our usage policy.

Blue indicates current components of the Annual Inflation Rate

Red indicates Deflation (falling prices)

-1.92% monthly = 23.04% Annual Deflation
-0.50% monthly = 6% Annual Deflation
.20% monthly= 2.4% annual inflation
.25% monthly= 3% annual inflation
.50% monthly= 6% annual inflation
.85% monthly= 10.2% annual inflation

In indicates the current components of the Annual Inflation Rate while out indicates previous components.

The long term average inflation rate from 1913 through 2008  is 3.43%

The all time low for mortgage rates means the best time for a mortgage refinance is now. Use our mortgage calculator and other free finance tools to determine the lowest mortgage rates in your area.