Monday, May 21, 2012

Fear of inflation

Currently the annual inflation rate (using the Consumer Price Index) is 2.2%.  Over the last 25 years, it's averaged 2.9%.  Given that history, I'd think we could pat ourselves on the back and say we've got that problem under control before turning attention to other matters (like unemployment).  However, a lot of political figures and commentators seem to be worried about the danger of renewed inflation.  I'm not sure about the balance of opinion among professional economists, but at least some of them seem to be concerned too.  What about the general public?  Between 2001 and 2009, the Gallup poll frequently asked people what they thought would happen with inflation in the next six months:  would it go up a lot, go up a little, remain the same, go down a little, or go down a lot?  If you count those as 5, 4, 3, 2, and 1 points, you can can calculate a summary score.  If the score is 3 the average persons thinks it will stay the same; the higher the score, the more people expect it to go up.  Here is a graph of the scores:
 Expected inflation increased pretty steadily until 2005, then dropped in 2007 and dropped again in 2009.  The drop at the end coincided with the recession, but over the whole period expected inflation had no connection to the unemployment rate, or to the current inflation rate.  Unfortunately Gallup doesn't seem to have asked the question after 2009, but at least we can say that the public didn't react to the stimulus package of early 2009 by getting more worried about inflation.

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