Tuesday, May 12, 2009

Inflation over the Years - Why It Won't Sky Rocket Now

I like looking at graphs of data from years past. I was doing a report on Inflation the other day and came by a really easy to read inflation graph for each year from 1911-2006. It will give you a clear picture of how the US inflation rate has changed over the last 95 years or so.

What can we immediately notice here?
Inflation has remained relatively stable, with very little volatility in the last 27 years. Since 1982 the inflation rate has bounced back and forth between about 2% and 5.5%. This is a very tight enclosure. The primary reason for the very unvolatile rate is that the Federal Reserve now has a really good handle on monetary policy, and the other tools at hand. Many economic experts, and even myself have made the case for a significant rise in the inflation rate, but after I have read several articles on the history of inflation, I seem to question my past predictions.

Will Inflation rise?
Yes it will, but I don't think ti will be as much a problem as I had previously thought. Although the Oil shortage of the late 70's caused the rate to skyrocket, the Federal reserve has learned a lot, and has more tools at it's disposal then they did just 30 years ago. I don't think we will see inflation over 7% or so in the long run, and i think that may be too high. The economy will recover, and there will be a huge supply of money, however, the Fed will increase interest rates. and likely bring inflation under control quite quickly. I'm not saying you should go out and buy bonds right now, or sell your Gold or Silver, but I am saying that I don't think things will be as serious as some are making them out to be.

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