The red line measures price change from a month ago. The blue
measures price change from a year ago. These are the default colors.
Nothing to do with politics.
The high red peak in 1974 is not
near 10%. The red line is measured by the numbers on the right side of
the graph. That red peak shows prices increased a little over 1% from
the month before.
The blue peak shows prices increased a little over 10% from the year before.
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| Graph #1: From-Month-Ago (red, right scale) vs From-Year-Ago (blue, left scale) |
That red peak occurred in June, 1974. The blue peak appears eight months later, in February 1975. After June of 1974, inflation was falling. The red line shows a definite down-trend, and the line is not even very jiggy until it approaches a bottom in the latter half of 1975.
The blue line runs downhill parallel to the red but several months later. The "percent change from year ago" numbers lag the monthly changes shown in red.
Notice that later on the graph, where the blue line peaks at the end of 1980, the blue line again lags the red. That's the way the "from year ago" calculation works.
I expect it to work the same way now, lag and all.
Recent numbers show that from-year-ago inflation increased from 1.5 in February 2021 to 3.5 in May, and 3.6 since June. You should note, however, that some of this increase was due to deflation dropping out of the from-year-ago calculation in March and April 2021. That deflation came with the covid recession of March and April 2020. The deflation, by dropping out of the calculation, contributed to the from-year-ago inflation in the Spring of 2021.
Those below-normal monthly numbers
were replaced by the above-normal numbers of March and April 2021.
These higher numbers also contributed to the increase this past Spring.
Since April 2021, when the monthly inflation number peaked, the monthly increase in prices has been getting smaller. As of September 2021, monthly inflation is back in the normal range -- or close to it, depending on how you define "normal" inflation. The important point is that the current, month-to-month rate of inflation has been falling for five months, and prices are now rising at an unremarkable rate.
Unfortunately, the from-year-ago calculation shows inflation to be much higher than recent monthly numbers show. The same thing happened during the inflation of the 1970s and 1980s. Also, as we saw at that time, the from-year-ago inflation develops a lag when the monthly inflation rate trends downhill. It takes a year to get all the old, high numbers out of the from-year-ago calculation. If the lag turns out to be 8 months again this time, the from-year-ago number will run high until December 2021, even if the monthly numbers continue to fall. Expect the media to make the most of it.
2 comments:
The lag is created by the calculation, the "percent change from year ago" calculation. The lag is not in the data or in the inflation or in the economy. The lag is created by the calculation. That's what I had in mind to say.
And this: The lag makes things look worse than they are. The rate of inflation has been falling for five months. People like Chuck Todd on Meet the Press either don't know that or don't care. That's a problem, because if you create inflation expectations, you make inflation worse.
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