US Inflation – January 2009 Update

The above chart shows the Consumer Price Index (CPI-U) up to December 2010 courtesy of the Bureau of Labor Statistics. Year on year inflation has risen from 1.8% in November ’10 to 2.7% in December ‘10. This index is going to be interesting to watch because month on month the index has actually fallen -0.2%.

I have taken the liberty of dividing the chart into two sections. The first red section runs from 1871 to 1932 and the second blue section runs from 1933 to present day. I chose this break point as during 1933 the US officially ended their link to the gold standard. I think this chart demonstrates a point that government will always choose to inflate debt away at the expense of savers if given the chance. They could not do this under the gold standard.

To demonstrate this arithmetic mean inflation rates have been:
1871 to 1932 CPI = 0.5% with deflation being a regular occurrence.
1933 to Present CPI = 3.7%

The CAGR CPI from 1871 to 1932 has been 2.1%.