Inflation in the United States and Elsewhere

February 2, 2010

U.S. consumer prices advanced 2.7% between December 2008 and December 2009, 2.6 percentage points greater than the on-year 0.1% uptick between December 2007 and December 2008.  From a wide selection of other advanced and emerging economies shown in the table below, a similar acceleration occurred only in India, where November comparisons are used instead of December figures.  The right-most column is the difference in percentage points (ppts) between inflation in the successive years shown.

  Dec 2008 Dec 2009 Difference, ppts
U.S. +0.1% +2.7% +2.6
India +10.6% +13.3% +2.7
Japan +0.4% -1.7% -2.1
Euro area +1.6% +0.9% -0.7
Britain +3.1% +2.9% -0.2
Canada +1.2% +1.3% +0.1
Australia +3.7% +2.1% -1.6
Switzerland +0.7% +0.3% -0.4
China +1.2% +1.9% +0.7
Russia +13.3% +8.8% -4.5
Indonesia +11.1% +2.8% -8.2
South Korea +4.1% +2.8% -1.3
Brazil +5.9% +4.3% -1.6
Mexico +6.5% +3.6% -2.9


The Organization of Economic Co-operation and Development, a bloc representing 30 advanced economies, today released consumer price figures for December and full-2009.  OECD-wide CPI inflation rose 1.9% between December 2008 and December 2009, 0.4 percentage points more than the increase in the prior 12 months.  Full-2009 inflation was just 0.5% in the OECD last year, compared to 3.7% in 2008. Energy accounted for the biggest share of that reduction, but core CPI (excluding food and energy) also retreated a half-percentage point from 2.2% in 2008 to 1.7% in 2009.  In a second table that compares CPI inflation in calendar 2008 to projected 2010 inflation made by the OECD staff last November, all countries examined above, including the United States, show a lower base of inflation coming out of the Great Recession than was the case in the early stage of the downturn.  That’s because of the sharp increase of unused resources.  Inflation fears related to massive deficit-spending and provisions of liquidity pertain to 2011 and beyond, not the present year.

CPI, % per annum 2008 2010-f Difference, ppts
U.S. +3.8% +1.4% -2.4
India +8.3% +7.1% -1.1
Japan +1.4% -0.9% -2.3
Euro area +3.3% +0.9% -2.4
Britain +3.6% +1.7% -1.9
Canada +2.4% +1.3% -1.1
Australia +4.4% +2.4% -2.0
Switzerland +2.4% +0.6% -1.8
China +5.9% +0.1% -5.8
Russia +14.1% +6.9% -7.2
Indonesia +9.8% +5.5% -4.3
South Korea +4.7% +2.8% -1.9
Brazil +5.7% +4.4% -1.3
Mexico +5.1% +4.2% -0.9


Investors want to know if America’s comparatively smaller drop in GDP last year and relatively bigger inflationary bounce will translate into a more aggressive monetary tightening in the United States than elsewhere.  Will the Fed start raising rates sooner and lift them in larger increments and more frequently than other major central banks?  The two comparisons I’ve documented here produce ambiguous results.  Moreover, the Fed, unlike the ECB, has a mandate to minimize unemployment as well as preserve price stability, and it is under greater political pressure than Europe’s central bank.  In identical circumstances of high unemployment and diminishing economic slack, the Fed would presumably tighten more slowly than the ECB. The wild card is that unused capital and labor could be reabsorbed more quickly in the United States.  At least that’s the implication of street forecasts that embody a rate of U.S. GDP growth this year that is roughly twice as fast as the anticipated expansion rates penciled in for Japan, Britain, Switzerland and the euro area.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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