Ten months ago, the Federal Reserve was telling us to expect a blip in the inflation rate that would go away by the end of the summer. It was a false hope. Now everyone knows inflation is real, because this week the annualized CPI came in at a 6.2% growth rate. Headlines appeared all over the place in the past 48 hours saying that this is the highest inflation rate in 30 years.
The thing is, looking back over charts going back to the 1960’s gives us a better picture of what is happening than a comparison to the 1990’s. Take a look at this inflation chart from the website macrotrends.net.
I have drawn three circles on this chart, with the third being that 1990 period.
The first circle is what inflation was doing in the 1960’s. From 1951 until 1966, inflation remained less than 2% a year. Then in 1966 it got to 3%. In 1969 it grew to 5.49%. Keep that year in mind for a few minutes.
Inflation dipped back down to 3.27% by 1972 and then ticked up until it exploded to 6.18% in 1973, which is where the second circle is. Historically – culturally – it was in 1973 that inflation became a huge recognized problem – one people actually went into panic about – in the United States. The price of meat in stores actually doubled in three months in 1973. The next year inflation went to over 11% and didn’t fall back down to below 4% until 1983.
The year of 1973 was the take-off year for inflation, even though it started to rise in 1969.
The above chart doesn’t show this year’s current twelve month annualized 6.2% growth rate, but if it did you would see a chart “resistance level” broken similar to what happened in 1969 or 1973. In other words it would look like the start of a new big uptrend instead of a just a blip in the chart.
Even this 1990 year marked the peak of a few years of rising inflation and not the start of a new trend.
1973 BTW – is the year the movie Soylent Green came out. The movie would have made no sense to people a few years before its release, but it captured the spirit of inflation as it came out as meat prices were doubling on people.
The data in the CPI release of this week is one month old, and as I mentioned yesterday already many commodity prices are poised to make new highs.
One could view the period from the 1990’s (with the exception of a few months in 2008) as a period of low inflation, much like the period from the early 1950’s to 1969 was. So, there is no reason to think this inflation rise is going to just end tomorrow.
Really, inflation is now an obvious defining feature of our time. In the 1970’s the best things to invest in where REIT’s, commodities, minerals stocks, energy stocks, gold, silver, and a few select foreign markets. I’m positioned for a repeat of all of that myself.
Now, a look at GDP growth going back to the 1960’s also shows some interesting things when compared with the inflation rate.
The GDP growth of the last decade in the 2010’s was weaker when compared with that of the 2000’s and the 1990’s.
It was less volatile than that of the 1970’s, but it never got as high as some of the years in the 1970’s did.
It was a decade of extremely sluggish and weak growth.
A lot of people make out like the 1980’s was a golden age, but when you look at the long-term and add inflation on top of it too, it wasn’t better than the 1960’s. You had a GDP growth surge in 1983 and 1984, but after that the growth rate petered out. The 1990’s were less volatile.
In reality, the US economy’s golden age was from World War II until 1969.
Growth was high and stable until 1969 when GDP fell to 3.1%, but inflation popped to 5.46% in that year.
That kicked off the 1970’s and years of strange Presidents, social malaise, and stagnation that really has persisted ever since.
I’m not going to go into the causes of all of that – just to point out when people say we got the highest inflation in thirty years that it might be best to look back to 1969 or 1973 to see where things are headed now for the next few years.
And here is another chart going back to 1900…
Maybe you can see why a 6% CPI is a big deal even more now…
WWII brought high inflation, but after 1951 inflation was low until 1969….
That’s 18 years.
And I think that is a good marker for the end of the World War II boom that people look back with nostalgia on. This 6% inflation means we are entering a new economic era for the US and global economy.