Here are some N-year rolling total inflation charts to put this datapoint in a longer-term perspective: https://totalrealreturns.com/inflation . Zooming out always smooths the noise.
Here are some N-year rolling total inflation charts to put this datapoint in a longer-term perspective: https://totalrealreturns.com/inflation . Zooming out always smooths the noise.
> Prices are up +4.25% in the past year, and +24.49% in the past 5 years, according to the latest CPI data released Jun. 10, 2026. The price level has approximately doubled (2.01x) today compared to August 1999.
Not knowing if that's good/bad, as it is without any frame of reference, so the same data for Spain looks something like this:
Prices up +3.2% in the past year, up +22.4% in the past 5 years. Compared to 1999, a 1.88× difference, and if you want to compare since when it doubled, it'd be around September 1996. This is according to a tool from INE, Spain’s national statistics: https://www.ine.es/varipc/index.do?L=1
2% is good, anything over 3% is not good, anything over 4% is bad, 5% and higher is really bad. Hope that clears things up for you.
It depends on the country. Brazil, due to its hyperinflation days, has a lot of indexed prices. These are prices that automatically increase due to inflation. This makes the country to have so called inertial inflation, current inflation caused by past inflation, and also makes it more robust to a higher inflation.
Why those arbitrary thresholds?
> Why those arbitrary thresholds?
The broad idea is you want a number low enough that people don't price inflation expectations into day-to-day pricing but not so low that a hiccup causes deflation.
The empirical evidence around inflation persistence is a bit all over the place, but broadly suggests people start daily indexing between 2 and 5%. When that starts to happen, restraining inflation without causing a depression becomes incredibly hard, because people will actively countermand policy moves.
The fed has a dual mandate to maintain full employment and keep inflation at 2%. Others have already explained why 2% and not 0%. Up to 3% is expected, 4% means significant price shocks and they should consider acting quickly. 5% means they are at risk of losing control of inflation as it's more than doubled from their mandate and the fed risks losing credibility with markets
In complete seriousness:
An offhand remark made by New Zealand's Finance Minister, Roger Douglas, during a 1988 television interview.
The FED says that 2% is good. 2% is not good. Their target of 2% per year means we have 2% compounding annually devaluation of our currency.
It's fine as long as t-bill rates match or exceed inflation. Then you can avoid losing purchasing power by just putting your money in the world's safest investment. Over the past century, t-bill returns have slightly exceeded inflation on average, though there have been periods when they didn't.
Stash paper cash in your safe and sure, you lose purchasing power. Use fiat money the way it's designed to be used, instead of using it like gold coins, and it works better.
Us debt as a fraction of GDP has doubled this century and roughly quadrupled in my lifetime. It would seem to me that eventually t-bills will not be safe.
That's by design.
If currency doesn't devalue then stuffing it under a mattress looks like a reasonable alternative to investing. If we hit deflation you can receive gains for "free" and borrowed money becomes more expensive over time. Neither of which our economic system is setup to handle.
We punish people who hoard cash by devaluing it thus encouraging them to put the money to work.
One side says this design is necessary to sustain growth. The other says it's unfair because the gains from the growth are unevenly distributed. Neither is wrong.
Why is that not good? When inflation is close to 0 real interest rates increase which causes the economy to slow down. It seems clear to me that the optimal rate of inflation is always above 0.
The real problem imo is that below 0% is really bad, and has the potential to spiral. So the fed does not target anything close to 0%, but instead targets some buffer above it.
So it's not that "2% is good", but more that "2% is the best buffer we've decided above the <0% super scary threshold"
Yes of course below 0% is especially bad, but I dont think thats the whole story. If central banks were able to set inflation with 100% certainty I still think targeting a number close to 0% is a bad idea. Nominal interest rates have a floor due to defaults, servicing costs. As inflation approaches 0 that floor is hit and monetary policy loses its ability to control real interest rates. Keeping nominal rates above their floor is key to ensuring small business can obtain liquidity, as the floor is approached it makes less sense for lenders to write small loans.
There are many other reasons a positive inflation rate is better than substantially near 0. One common complaint about inflation is that erodes real wages because nominal wages are sticky, but this is actually a good thing. It gives businesses room to breathe during downturns without cutting nominal wages or having to cut staff. Positive inflation also forces cash into productive uses which helps monetary policy because it keeps the actaul money supply more stable.
The Fed did a study some time back estimating CPI levels since 1800. [1] They found that from 1800 to 1950 the CPI never shifted more than 25 points from the starting base of 51, so it always stayed within +/- ~50% of that baseline. That's through the Civil War, both World Wars, Spanish Flu, and much more. And obviously the US economy increased in sized quite exponentially from 1800 to 1950, with no persistent inflation whatsoever.
It's even more interesting to contrast this from 1971 onward. 1971 is when Bretton Woods ended and the government was given a free hand to start 'printing money' so to speak, and inflation became the new policy. Since then the CPI has increased by more than 800 points, 1600% more than our baseline. And it's only increasing faster now - to the point that these numbers I'm giving are already rather outdated.
[1] - https://www.minneapolisfed.org/about-us/monetary-policy/infl...
Can you really say that based only on the inflation? What if wages increased 6%, then 3% inflation wouldn't be as bad as if inflation raised 2% but wages only increased 0.1%? At least if you think about purchasing power I suppose. But won't claim to be an expert on this, happy to be educated by those who are :)
In general, higher inflation has a negative impact on consumer sentiment even if wage growth matches the inflation, which it rarely does.
But the bigger issue is that inflation is generally distributed much more evenly than wage increases. Very few employers offer a COLA that is automatic, so wages almost always trail inflationary pressure.
Inflation isnt as simple as good/bad. Monetary theory shows us that short term inflation is a good way to counteract spikes in unemployment. Whether you prefer stable inflation with swings in unemployment or stable unemployment with swings in inflation or something in between is a political question.
Which puts central banks in a hard place right now because the problem is supply-side. The dual mandate is a lose-lose situation.
That shows that it’s been since 1991 since we saw similar five year increases in prices. Which is a long time. You also have to be careful not to zoom out so far you get into the “we all die anyway” scale where you’re not really tracking things that are meaningful to on-the-ground, as-lived reality
1918 isn't very relevant to modern living. And nobody wants to go back to the stagflation of the 1970s. And that scale is logarithmic.
Graph it without the logarithmic scale and draw a curve through the 1982-2018 data and the recent spike will explain why people are complaining about it.
Indeed. Back then food and shelter comprised a much larger % of the average income, and so each percentage point of inflation was considerably more painful than it is now.
Zooming out in what sense? Those rolling charts don’t mean much imo. Year over year change is a pretty good perspective and a tick up like this is not great.
Zooming out tells you this tick up to 4.2% is not nearly as bad as the post-covid inflation, and drastically better than the 70s. Not a good sign, but also not too far outside the historical mean and probably no need to panic in and of itself.
I don’t think that tells us anything. We already know 7% > than 4.2. This should already be a fact that inflation was worse during Covid.
I don’t think know that inflation was worse in the 70s helps fixes the narrative that 4.2% inflation is not good.
Noise is a lot better when it's centered around 0.
Now overlay average income on top
Why is this logarithmic?
Because inflation compounds
I am not sure what the perspective is: we aren't the same economy (there are true financial system differences between now and say, 1985) and, even if we were the same, the three other shocks that rise like this are two world wars and an oil crisis. This is some dunderding old narcissist thinking he's the toughest kid on the block. You could argue the oil crisis was a similar result of the US never, ever learning a lesson about intervening in others' political systems (especially if there's oil involved), but trend line or not, no one had to go through this.
And the trend line would bend differently if we could just learn the lesson.
And yes I am oversimplifying: the current conditions are actually do to a number of stupid things the current administration did because they assumed everyone who came before them was stupid and woke, but this just strikes me wrong, as though the chart should be comfort to someone struggling to make rent or pay for medicine or what have you. Much of this could have been avoided.
The "stupid and woke" thing is just marketing, they know exactly what they're doing.
Do understand actual policy decisions: https://www.richmondfed.org/publications/research/econ_focus...
Simple, excellent data. Thanks.
This is so good Ty.
Basically, looking at inflation over time, we look pretty good here.