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 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.

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 the inflation rate crossed back up through its moving average, indicating that the disinflationary period had ended and inflation was increasing again. 

In October of 2003 the inflation rate once again crossed below its averages and trended downward for a while but moved up through the average again in April of 2004. It continued upward until August of 2006 when it broke sharply downward proceeding to break through the brown bottom "support" trendline.   From there a new trend may have begun (see green "New Trend").

The blue trend-line is called a "Linear Regression" line and it shows the overall trend 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 1994) is declining slightly (the Blue line is tilted downward).

The average annual inflation rate for the entire period since 1914  is 3.41%

Current Commentary-

The average annual inflation rate has been hovering around 4% for several months at 4.08% 4.03%, 3.98%, 3.94% for December, February, March and April respectively.

January's 4.28% was the only outlier.  May's inflation rate at 4.18% is up from April but not quite to January's level yet.

It seems like prices are increasing at a much higher rate than 4%.   As a matter of fact a recent CNN Poll said that 91% of the US population is concerned about inflation. And rightly so, even with inflation at "only" 4% your money loses considerable value in a few short years. 

For instance at 4% inflation for 10 years $1000 has the purchasing power of only $675.56. Put another way you would need $1,480.24 to buy what $1000 bought only 10 years earlier. 

So "only"  4%  inflation resulted in a 48% loss of purchasing power in 10 years!  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 5%, 6% or 10% can be to your retirement nest egg.

For months, I have been saying that the FED's very "loose" money policy has drastically increased the money supply. Ensuring the loss of purchasing power of the "greenback" and resulting in inflation and bad foreign exchange rates.

So by definition increases in the money supply are the very cause of inflation so the chances of inflation moderating are extremely slim.

If we look at the table (right) we can see the current monthly components of the Annual Inflation rate.  Those marked in Blue are currently part of the annual rate.

In May a 0.61% monthly inflation rate was replaced by 0.84% which increased the annual inflation rate from 3.94% to 4.18% imagine what will happen is June's 0.19% is replaced by a similar number or what if July or August's negative numbers are replaced by 0.85%  we could se a 1% increase in the inflation rate overnight!

This might be a good time to stock up on inflation hedges.

Let's hope inflation moderates over the next few months as it did last year or we will begin to see some real panic.

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

See our article on the cause of inflation for more information on how the money supply is the real determining factor in the inflation rate.

 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.

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

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

-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 3.41%