Posted by: Jon Henke on Wednesday, December 28, 2005 Two months ago, with the Consumer Price Index increasing by 1.2% in September—an annualized rate close to 15%—there was quite a lot of public concern about inflation. I addressed that at the time, noting that the dramatic increase in the Consumer Price Index may not be inflation at all. If inflation is a general, sustained increase in the price level, then what we saw in September was not a significant increase in inflation. For one thing, with 90% of the CPI increase in energy, the price increase was "not generalized as we would see with genuine inflation". The CPI increase was, I argued, a change in "supply and demand factors, rather than a decline in the purchasing power of money". Most importantly, I argued that the September jump in CPI was unlikely to be a sustained increase in the general price level. I think the evidence over the past month has supported this position. Consider November CPI... The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.8 percent in November, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The November level of 197.6 (1982-84=100) was 3.5 percent higher than in November 2004. ... On a seasonally adjusted basis, the CPI-U decreased 0.6 percent in November.The dominant contributor to that decline was energy, where price levels declined "a record 8.0 percent in November." If inflation is a general, sustained increase in the price level, then what we saw in September was not a significant increase in inflation. It was neither general nor sustained. The buying power of a dollar did not change appreciably; we just experienced significant shifts in supply and demand factors. |
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