A 30-Year-Long Trend of U.S. Disinflation

September 17, 2010

U.S. CPI inflation peaked at the cusp between the Carter and Reagan administrations some thirty years ago.  Each U.S. presidential administration since Carter has experienced less inflation than its predecessor.  The table below documents total and core non-food & energy CPI inflation in percent per annum terms for every presidency since John Kennedy.  The latest inflation rates for the year to August 2010, which were reported this morning, are also shown.

Percent Per Annum Total CPI Core CPI
Kennedy 1.1% 1.5%
Johnson 2.9% 2.9%
Nixon 6.2% 5.4%
Ford 7.0% 7.2%
Carter 10.4% 9.6%
Reagan 4.2% 5.0%
Bush41 4.2% 4.4%
Clinton 2.6% 2.6%
Bush43 2.4% 2.1%
Obama 1.8% 1.4%
August 2010 1.1% 0.9%


Low U.S. inflation currently reflects global disinflation, which got an extra boost from a world recession.  The latest on-year consumer price inflation rates in Euroland are 1.6% and minus 0.9%.  Non-food, non-energy inflation in those places of 1.0% and minus 1.5% are, as in the United States, even weaker than the total headline paces. A paradox of ultra-disinflation experienced lately is fairly elevated commodity prices.  Gold hit a record high earlier today of $1284.40 per barrel, and oil prices are hovering in the mid-70s, higher than the five-year averages of $53.58 in 2003-07, $23.18 in 1998-2002 and $19.33 in 1993-97.

This year has nonetheless seen waves of investor distrust that heavy deficit spending will cause an unacceptable uptrend in inflation over coming years.  One lesson highlighted in the above table is that inflation cycles are very long.  Who knew in the early 1960s that double-digit inflation was coming?  Like now, the United States ratcheted up its spending on war and domestic programs in the 1960s, and lawmakers chose to fund those initiatives with borrowed money rather than taxes.  The Kennedy administration in fact cut taxes. 

However, there is one huge difference in the two eras that makes all the difference in the world regarding future inflation.  Real economic growth expanded 4.3% per annum in the 1960s and 3.3% in the 1970s, whereas GDP in the 10.5 years since the end of 1999 has increased only 1.7% per annum.  Factors of production, capital and labor, became very tight back then, but the legacy of a decade of sub-trend growth is an enormous amount of slack these days.  Inflation isn’t going to accelerate to unacceptable levels without aggregate demand for goods and services becoming overheated well beforehand.

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

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