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 wavy line represents the actual annual inflation rate as calculated from the Consumer Price Index (CPI-U) published by the U.S. Bureau of Labor Statistics.

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 annual inflation rate as measured during 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 inflation downtrend. So although the short term downtrend ended in August 2002 the long term trend disinflationary trend ended in June of 2004

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.  See What is Deflation? for more information.

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. See What is Disinflation for more information.

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 1913  has been 3.41% per year

Current Commentary-

The last three months have gotten progressively more negative.   Beginning at (-0.37%) and then (-0.74%) and now we have reached an even more negative
-1.28%.   Back in 1955 the lowest level it reached  -0.74%. 

Last month I said, "If levels get lower next month we will be at levels not seen since 1950" and so we have.  

During the 14 month deflationary period in 1949-1950 prices fell between (-0.42%)  and (-2.08%) on an annual basis. So we are running pretty similar to that period.

Last month I also said, " if during the month of May we have another ¼% rise and .84% falls out of the calculations we will have another decrease bringing deflation to about  -1.25%".  Pretty good guess... with deflation actually coming in at -1.28%. 

Looking ahead at next month we are almost guaranteed to get close to 1950s -2.08% because last June had over 1% inflation all by itself (see table lower right). 

With that high a number falling out of the calculations we are almost guaranteed to tack on at least another   -0.75% to our current -1.28% putting us slightly below
 -2.00% or within spitting distance of 1950's -2.08%.   The next milestone after that was 1949's  -2.87%. With 0.53% in July of 2008  it is possible  to reach -2.87% in July 2009 if prices actually fall in July but unlikely if the current trend of  monthly price increases continues.

Robert Prechter of the Elliottwave Theorist projected the current period of deflation way back in 2000.  So if you want to be prepared for what is coming next read his current  Deflation Survival Guide (it's free).

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

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.

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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
1.00% monthly= 12% annual inflation

The long term average inflation rate from 1913 through 2009  is 3.41%