Inflation! Debasement!

hyperinflation

Hyperinflation-era German currency

Source: Flikr Creative Commons

The latest Consumer Price Index (CPI) data came out today.  Inflation is low by any standard: 1 percent per year for all items in the CPI, 2.3 percent when we exclude energy and food from the index.

A colleague and I have a running joke when these numbers appear.  Either by email or in person, we cry:

Inflation! 

Debasement!

This is an homage to Paul Ryan, who has spent much of his career warning of the impending doom of these twin scourges.

Let’s take a quick look at these two measures.  First, inflation:

Inflation

Ryan took office in January 1999 so that’s I started the picture there.  The inflation rate including everything (blue line) topped 4 percent only a couple of times while he’s been in office, and they all coincide with oil price spikes.  The red line excludes food and energy, both of which are notoriously volatile.  By this measure, inflation is behaving the way the Federal Reserve wants it to, staying around a target rate of 2 percent.

How about debasement?  In one sense this is just a synonym for inflation as it indicates a declining value of the dollar.  We can also look at this from the perspective of the exchange rate:

debasement

Here we’re looking at the US dollar measured against a group of currencies, not just a single one such as the euro or the yen.  (This is known as a trade-weighted exchange rate.)  Perhaps Ryan is right to fear this kind of debasement as the value of the dollar fell from 2002 to 2008.  One problem with this, however, is that a declining dollar helps US exports generally, and probably was especially nice for manufacturing firms in Ryan’s district. The dollar has held steady and even strengthened since 2011.

A broken clock tells the correct time twice a day, so I don’t expect Rep. Ryan to change his mind on this topic.  I also am ready for him and those who are obsessed with inflation! and debasement! to say “I told you so” at the first sign that the CPI is rising at 3%.

In the meantime, keep in mind that American inflation is firmly in check.