Consumer Prices And The Historical Pain(s)

At its peak in March 1947, the US CPI had gained 19.67% (unadjusted) year-over-year. The price trend began in July 1946, spiraling out of control just that quickly.

Worse, while consumer prices did substantially decelerate after March ’47, they would continue rising at better than an 8% rate (apart from a single month) all the way until August ’48.

In retrospect, the early 1950s mark a turning point in the American inflation experience. The decades leading up to the Korean war era featured alternating periods of sharp inflation and genuine deflation, with the former generating active efforts to control prices and the latter generating fears of recession and, sometimes, active efforts to raise prices.

What could possibly have rearranged the entire order of consumer price behavior around, oh, 1955 or so?

At the same time certain criticisms have been made of the market, in particular that it hampers efforts to control inflation…So far as inflation is concerned, borrowing in the Euro-market by a country may enable the private sector to circumvent a domestic credit squeeze, or may allow the authorities to delay corrective action against an external deficit.

As to the latter, circumventing domestic currency, yep, that was that whole Italy thing (read about it here).

While such arguments have their element of truth, this may easily be exaggerated…Moreover, arguments about the control of inflation and the possibility of bad debts would for the most part apply not to Euro-currency lending as such but to international credit in general.

Yeah, this was written, the world told not to worry about any inflationary dangers from such gross monetary upheaval, in…1964.

After having messed up the Great Depression, they spent more than a decade fearing an inflationary aftermath only to then abandon those concerns right in time for money to change and the Great Inflation to begin.

How can authorities everywhere, the BIS, the Fed, whatever, continuously be so bad at this whole money, banking, and inflation/deflation business?

For one, they never listen to bonds. On the contrary, the default position – going all the way back a century – always seems to be to discount their deeply fundamental signal for various imaginary reasons if only to dismiss it particularly when that signal doesn’t fit the overall narrative (be it inflation or deflation); which seems to be most of the time.

Some things never do change.

For consumers, they are caught in a vise of supply shocks, with all the basics of living, gasoline, food, and now rent, contributing the most. For everyone, this is indistinguishable from inflation; and if it can be sorted as for a different cause, no one really cares given the pain being forced on them.

Causation does matter; if there isn’t money, there isn’t inflation. And supply shocks can go on for some time wreaking havoc on economic balances, but they will end.

There are only degrees of pain here.

And it’s not like the bond market is offering some tangible shade of hope by refusing to climb aboard and side with Mr.

Go back to the BLS in 2014 for the non-eurodollar expansion version of price behavior, an era which had “featured alternating periods of sharp inflation and genuine deflation.” You might ask why the eurodollar futures curve is so upended right now despite these consumer price numbers and the Federal Reserve clearly claiming an itch to hawkishly rampage.

The good news, such that it might be, being in the post-2008 monetary condition which means, like the pre-1955 condition, the consumer price shock bad as it is will not actually last for decades (as one unfortunately money-illiterate former policymaker has recently claimed).

The bad news is that whole thing about frying pans and fires.