CMP Associates Regulation Blog

Chart I-1 provides US nominal GDP from 1929 to 2020. The chart disguises the decline of nominal GDP during the 1930s from $104.6 billion in 1929 to $57.2 billion in 1933 or by 45.3 percent (data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm). The level of nominal GDP reached $102.9 billion in 1940 and exceeded the $104.6 billion of 1929 only with $129.3 billion in 1941. The only major visible bump in the chart occurred in the recession of IVQ2007 to IIQ2009 with revised cumulative decline of real GDP of 3.8 percent. US nominal GDP fell from $14,769.9 billion in 2008 to $14,478.1 billion in 2009 or by 2.0 percent. US nominal GDP rose to $15,049.0 billion in 2010 or by 3.9 percent and to $15,599.7 billion in 2011 for an additional 3.7 percent for cumulative increase of 7.7 percent relative to 2009 and to $16,254.0 billion in 2012 for an additional 4.2 percent and cumulative increase of 12.3 percent relative to 2009. US nominal GDP increased from $14,474.2 in 2007 to $21,372.6 billion in 2019 or by 47.7 percent at the average annual rate of 3.3 percent per year (https://apps.bea.gov/iTable/index_nipa.cfm). US Nominal GDP fell from $21,372.6 billion in 2019 to $20,893.7 billion in 2020 or 2.2 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Tendency for deflation would be reflected in persistent bumps. In contrast, during the Great Depression in the four years of 1929 to 1933, GDP in constant dollars fell 26.3 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7). The comparison of the global recession after 2007 with the Great Depression is entirely misleading (https://cmpassocregulationblog.blogspot.com/2021/10/us-gdp-growing-at-20-saar-in-iiiq2021.html and earlier https://cmpassocregulationblog.blogspot.com/2021/10/us-gdp-growing-at-67-saar-in-iiq2021-in.html).

Chart I-1, US, Nominal GDP 1929-2020

Source: US Bureau of Economic Analysis

Chart I-2 provides US real GDP from 1929 to 2020. The chart also disguises the Depression of the 1930s. In the four years of 1929 to 1933, GDP in constant dollars fell 26.3 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7; data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm). Persistent deflation threatening real economic activity would also be reflected in the series of long-term growth of real GDP. There is no such behavior in Chart I-2 except for periodic recessions in the US economy that have occurred throughout history. US real GDP decreased from $19,032.7 billion in 2019 to $18,384.7 billion in 2020 or 3.4 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021).

Chart I-2, US, Real GDP 1929-2020

Source: US Bureau of Economic Analysis

Deflation would also be in evidence in long-term series of prices in the form of bumps. The GDP implicit deflator series in Chart I-3 from 1929 to 2020 shows sharp dynamic behavior over time. There is decline of the implicit price deflator of GDP by 25.8 percent from 1929 to 1933 (data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm). In contrast, the implicit price deflator of GDP of the US increased from 92.642 (2012 =100) in 2007 to 95.024 in 2009 or by 2.6 percent and increased to 112.294 in 2019 or by 18.2 percent relative to 2009 and 21.2 percent relative to 2007. The implicit price deflator increased from 112.294 in 2019 to 113.648 in 2020 or 1.2 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). The implicit price deflator of US GDP increased in every quarter from IVQ2007 to IVQ2012 with exception of decline from 95.065 in IVQ2008 to 94.852 in IIQ2009 or by 0.2 percent (https://apps.bea.gov/iTable/index_nipa.cfm). The implicit price deflator of GDP fell from 113.346 in IQ2020 to 112.859 in IIQ2020 or 0.4 percent and increased to 113.888 in IIIQ2020 or 0.9, increasing to 114.439 in IVQ2020 or 0.5 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). The implicit price deflator of GDP increased from 114.439 in IVQ2020 to 115.652 in IQ2021 or 1.1 percent, increasing to 117.413 in IIQ2021 or 1.5 percent. The implicit price deflator of GDP increased from 117.413 in IIQ2012 to 119.051 in IIIQ2021 or 1.4 percent. Wars are characterized by rapidly rising prices followed by declines when peace is restored. The US economy is not plagued by deflation but by long-run inflation.

Chart I-3, US, GDP Implicit Price Deflator 1929-2020

Source: US Bureau of Economic Analysis

Chart I-4 provides percent change from preceding quarter in prices of GDP at seasonally adjusted annual rates (SAAR) from 1980 to 2020. There is one case of negative change by 0.6 percent in IIQ2009 that was adjustment from 3.1 percent in IIIQ2008 following 1.7 percent in IQ2008 and 1.5 percent IIQ2008 caused by carry trades from policy interest rates being moved to zero into commodity futures. These positions were reversed because of the fear of toxic assets in banks in the proposal of TARP in late 2008 (Cochrane and Zingales 2009). Prices of GDP increased at 0.3 percent in IVQ2014. GDP prices changed at 0.0 percent in IQ2015, increasing at 2.3 percent in IIQ015 and at 1.0 percent in IIIQ2015. Prices of GDP changed at 0.0 percent in IVQ2015 and decreased at 0.2 percent in IQ2016. Prices of GDP changed at 2.7 percent in IIQ2016 and increased at 1.2 percent in IIIQ2016. Prices of GDP increased at 2.2 percent in IVQ2016 and increased at 2.0 percent in IQ2017. Prices of GDP increased at 1.3 percent in IIQ2017 and increased at 2.2 percent in IIIQ2017. Prices of GDP increased at 2.7 percent in IVQ2017 and increased at 2.4 percent in IQ2018. Prices of GDP increased at 3.1 percent in IIQ2018 and increased at 1.8 percent in IIIQ2018. Prices of GDP increased at 2.0 percent in IVQ2018 and increased at 1.1 percent in IQ2019. Prices of GDP increased at 2.3 percent in IIQ2019 and increased at 1.4 percent in IIIQ2019. Prices of GDP increased at 1.5 percent in IVQ2019 and increased at 1.6 percent in IQ2020. Prices of GDP decreased at 1.5 percent in IIQ2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Prices of GDP increased at 3.6 percent in IIIQ2020. Prices of GDP increased at 2.2 percent in IVQ2020. Prices of GDP increased at 4.3 percent in IQ2021. Prices of GDP increased at 6.1 percent in IIQ2021. Prices of GDP increased at 5.7 percent in IIIQ2021. There has not been actual deflation or risk of deflation threatening depression in the US that would justify unconventional monetary policy.

Chart I-4, Percent Change from Preceding Period in Prices for GDP Seasonally Adjusted at Annual Rates 1980-2021

Source: US Bureau of Economic Analysis

Chart I-4A provides quarterly percentage changes of prices of GDP from IQ2018 to IIIQ2021. Prices of GDP decreased at 1.5 percent in IIQ2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Prices of GDP increased at 3.6 percent in IIIQ2020 and increased at 2.2 percent in IVQ2020. Prices of GDP increased at 4.3 percent in IQ2021 and increased at 6.1 percent in IIQ2021. Prices of GDP increased at 5.7 percent in IIIQ2021.

Chart I-4A, Percent Change from Preceding Period in Prices for GDP Seasonally Adjusted at Annual Rates 2018-2021

Source: US Bureau of Economic Analysis

Chart I-5 provides percentage changes of prices of GDP in the US from 1930 to 2020. There are decreases only in the 1930s and after 0.0 percent in 1949 after major increases during World War II.

Chart I-5, Percent Change from Preceding Year in Prices for Gross Domestic Product 1930-2020

Chart I-6 provides the producer price index from 1947 to 2021. The producer price index fell 2.8 percent in 1949 following the adjustment to World War II and fell 0.6 percent in 1952 and 1.0 percent in 1953 around the Korean War. There are two other mild declines of 0.3 percent in 1959 and 0.3 percent in 1963. There are only few subsequent and isolated declines of the producer price index of 1.4 percent in 1986, 0.8 percent in 1998, 1.3 percent in 2002 and 2.6 percent in 2009. The decline of 2009 was caused by unwinding of carry trades in 2008 that had lifted oil prices to $140/barrel during deep global recession because of the panic of probable toxic assets in banks that would be removed with the Troubled Asset Relief Program (TARP) (Cochrane and Zingales 2009). Producer prices fell 3.2 percent in 2015 and declined 1.0 percent in 2016 during collapse of commodity prices form high prices induced by zero interest rates. Producer prices increased 3.2 percent in 2017 and increased 3.1 percent in 2018. Producer prices increased 0.8 percent in 2019. Producer prices fell 1.4 percent in 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). There is no evidence in this history of 66 years of the US producer price index suggesting that there is frequent and persistent deflation shock requiring aggressive unconventional monetary policy. The design of such anti-deflation policy could provoke price and financial instability because of lags in effect of monetary policy, model errors, inaccurate forecasts and misleading analysis of current economic conditions.

Chart I-6, US, Producer Price Index, Finished Goods, NSA, 1947-2021

Source: US Bureau of Labor Statistics

Chart I-7 provides 12-month percentage changes of the producer price index from 1948 to 2021. The distinguishing event in Chart I-7 is the Great Inflation of the 1970s. The shape of the two-hump Bactrian camel of the 1970’s resembles the double hump from 2007 to 2021.

Chart I-7, US, Producer Price Index, Finished Goods, 12-Month Percentage Change, NSA, 1948-2021

Source: US Bureau of Labor Statistics

Annual percentage changes of the producer price index from 1948 to 2020 are shown in Table I-1A. The producer price index fell 2.8 percent in 1949 following the adjustment to World War II and fell 0.6 percent in 1952 and 1.0 percent in 1953 around the Korean War. There are two other mild declines of 0.3 percent in 1959 and 0.3 percent in 1963. There are only few subsequent and isolated declines of the producer price index of 1.4 percent in 1986, 0.8 percent in 1998, 1.3 percent in 2002 and 2.6 percent in 2009. The decline of 2009 was caused by unwinding of carry trades in 2008 that had lifted oil prices to $140/barrel during deep global recession because of the panic of probable toxic assets in banks that would be removed with the Troubled Asset Relief Program (TARP) (Cochrane and Zingales 2009). Producer prices fell 3.2 percent in 2015 and declined 1.0 percent in 2016 during collapse of commodity prices form high prices induced by zero interest rates. Producer prices increased 3.2 percent in 2017 and increased 3.1 percent in 2018. Producer prices increased 0.8 percent in 2019. Producer prices fell 1.4 percent in 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). There is no evidence in this history of 66 years of the US producer price index suggesting that there is frequent and persistent deflation shock requiring aggressive unconventional monetary policy. The design of such anti-deflation policy could provoke price and financial instability because of lags in effect of monetary policy, model errors, inaccurate forecasts and misleading analysis of current economic conditions.

Table I-1A, US, Annual PPI Inflation ∆% 1948-2020

Year	Annual
1948	8.0
1949	-2.8
1950	1.8
1951	9.2
1952	-0.6
1953	-1.0
1954	0.3
1955	0.3
1956	2.6
1957	3.8
1958	2.2
1959	-0.3
1960	0.9
1961	0.0
1962	0.3
1963	-0.3
1964	0.3
1965	1.8
1966	3.2
1967	1.1
1968	2.8
1969	3.8
1970	3.4
1971	3.1
1972	3.2
1973	9.1
1974	15.4
1975	10.6
1976	4.5
1977	6.4
1978	7.9
1979	11.2
1980	13.4
1981	9.2
1982	4.1
1983	1.6
1984	2.1
1985	1.0
1986	-1.4
1987	2.1
1988	2.5
1989	5.2
1990	4.9
1991	2.1
1992	1.2
1993	1.2
1994	0.6
1995	1.9
1996	2.7
1997	0.4
1998	-0.8
1999	1.8
2000	3.8
2001	2.0
2002	-1.3
2003	3.2
2004	3.6
2005	4.8
2006	3.0
2007	3.9
2008	6.3
2009	-2.6
2010	4.2
2011	6.1
2012	1.9
2013	1.2
2014	1.9
2015	-3.2
2016	-1.0
2017	3.2
2018	3.1
2019	0.8
2020	-1.4

Source: US Bureau of Labor Statistics

The producer price index excluding food and energy from 1973 to 2021, the first historical date of availability in the dataset of the Bureau of Labor Statistics (BLS), shows similarly dynamic behavior as the overall index, as shown in Chart I-8. There is no evidence of persistent deflation in the US PPI.

Chart I-8, US Producer Price Index, Finished Goods Excluding Food and Energy, NSA, 1973-2021

Source: US Bureau of Labor Statistics

Chart I-9 provides 12-month percentage rates of change of the finished goods index excluding food and energy. The dominating characteristic is the Great Inflation of the 1970s. The double hump illustrates how inflation may appear to be subdued and then returns with strength.

Chart I-9, US Producer Price Index, Finished Goods Excluding Food and Energy, 12-Month Percentage Change, NSA, 1974-2021

Source: US Bureau of Labor Statistics

The producer price index of energy goods from 1974 to 2021 is in Chart I-10. The first jump occurred during the Great Inflation of the 1970s analyzed in various comments of this blog (http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html) and in Appendix I. There is relative stability of producer prices after 1986 with another jump and decline in the late 1990s into the early 2000s. The episode of commodity price increases during a global recession in 2008 could only have occurred with interest rates dropping toward zero, which stimulated the carry trade from zero interest rates to leveraged positions in commodity futures. Commodity futures exposures were dropped in the flight to government securities after Sep 2008. Commodity future exposures were created again when risk aversion diminished around Mar 2010 after the finding that US bank balance sheets did not have the toxic assets that were mentioned in proposing TARP in Congress (see Cochrane and Zingales 2009). Fluctuations in commodity prices and other risk financial assets originate in carry trade when risk aversion ameliorates. There are also fluctuations originating in shifts in preference for asset classes such as between commodities and equities.

Chart I-10, US, Producer Price Index, Finished Energy Goods, NSA, 1974-2021

Source: US Bureau of Labor Statistics

Chart I-11 shows 12-month percentage changes of the producer price index of finished energy goods from 1975 to 2021. This index is only available after 1974 and captures only one of the humps of energy prices during the Great Inflation. Fluctuations in energy prices have occurred throughout history in the US but without provoking deflation. Two cases are the decline of oil prices in 2001 to 2002 that has been analyzed by Barsky and Kilian (2004) and the collapse of oil prices from over $140/barrel with shock of risk aversion to the carry trade in Sep 2008. There are declines in 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021) followed by sharp increased into 2021.

Chart I-11, US, Producer Price Index, Finished Energy Goods, 12-Month Percentage Change, NSA, 1975-2021

Source: US Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

Chart I-12 provides the consumer price index NSA from 1913 to 2021. The dominating characteristic is the increase in slope during the Great Inflation from the middle of the 1960s through the 1970s. There is long-term inflation in the US and no evidence of deflation risks.

Chart I-12, US, Consumer Price Index, NSA, 1913-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-13 provides 12-month percentage changes of the consumer price index from 1914 to 2021. The only episode of deflation after 1950 is in 2009, which is explained by the reversal of speculative commodity futures carry trades that were induced by interest rates driven to zero in a shock of monetary policy in 2008. The only persistent case of deflation is from 1930 to 1933, which has little if any relevance to the contemporary United States economy. There are actually three waves of inflation in the second half of the 1960s, in the mid-1970s and again in the late 1970s. Inflation rates then stabilized in a range with only two episodes above 5 percent.

Chart I-13, US, Consumer Price Index, All Items, 12- Month Percentage Change 1914-2021

Source: US Bureau of Labor Statistics

Table I-2 provides annual percentage changes of United States consumer price inflation from 1914 to 2020. There have been only cases of annual declines of the CPI after wars:

World War I minus 10.5 percent in 1921 and minus 6.1 percent in 1922 following cumulative increases of 83.5 percent in four years from 1917 to 1920 at the average of 16.4 percent per year
World War II: minus 1.2 percent in 1949 following cumulative 33.9 percent in three years from 1946 to 1948 at average 10.2 percent per year
Minus 0.4 percent in 1955 two years after the end of the Korean War
Minus 0.4 percent in 2009.
The decline of 0.4 percent in 2009 followed increase of 3.8 percent in 2008 and is explained by the reversal of speculative carry trades into commodity futures that were created in 2008 as monetary policy rates were driven to zero. The reversal occurred after misleading statement on toxic assets in banks in the proposal for TARP (Cochrane and Zingales 2009).

There were declines of 1.7 percent in both 1927 and 1928 during the episode of revival of rules of the gold standard. The only persistent deflationary period since 1914 was during the Great Depression in the years from 1930 to 1933 and again in 1938-1939. Consumer prices increased only 0.1 percent in 2015 because of the collapse of commodity prices from artificially high levels induced by zero interest rates. Consumer prices increased 1.3 percent in 2016, increasing at 2.1 percent in 2017. Consumer prices increased 2.4 percent in 2018, increasing at 1.8 percent in 2019. Consumer prices increased 1.2 percent in 2020. Fear of deflation based on that experience does not justify unconventional monetary policy of zero interest rates that has failed to stop deflation in Japan. Financial repression causes far more adverse effects on allocation of resources by distorting the calculus of risk/returns than alleged employment-creating effects or there would not be current recovery without jobs and hiring after zero interest rates since Dec 2008 and intended now forever in a self-imposed forecast growth and employment mandate of monetary policy. Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output that is actually a target of growth forecast. The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et al 2012), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness. Jon Hilsenrath, writing on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes 1865 pages of transcripts of eight formal and six emergency policy meetings at the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). If there were an infallible science of central banking, models and forecasts would provide accurate information to policymakers on the future course of the economy in advance. Such forewarning is essential to central bank science because of the long lag between the actual impulse of monetary policy and the actual full effects on income and prices many months and even years ahead (Romer and Romer 2004, Friedman 1961, 1953, Culbertson 1960, 1961, Batini and Nelson 2002). Jon Hilsenrath, writing on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzed 1865 pages of transcripts of eight formal and six emergency policy meetings at the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). Jon Hilsenrath demonstrates that Fed policymakers frequently did not understand the current state of the US economy in 2008 and much less the direction of income and prices. The conclusion of Friedman (1953) that monetary impulses increase financial and economic instability because of lags in anticipating needs of policy, taking policy decisions and effects of decisions. This a fortiori true when untested unconventional monetary policy in gargantuan doses shocks the economy and financial markets.

Table I-2, US, Annual CPI Inflation ∆% 1914-2020

Year	Annual ∆%
1914	1.0
1915	1.0
1916	7.9
1917	17.4
1918	18.0
1919	14.6
1920	15.6
1921	-10.5
1922	-6.1
1923	1.8
1924	0.0
1925	2.3
1926	1.1
1927	-1.7
1928	-1.7
1929	0.0
1930	-2.3
1931	-9.0
1932	-9.9
1933	-5.1
1934	3.1
1935	2.2
1936	1.5
1937	3.6
1938	-2.1
1939	-1.4
1940	0.7
1941	5.0
1942	10.9
1943	6.1
1944	1.7
1945	2.3
1946	8.3
1947	14.4
1948	8.1
1949	-1.2
1950	1.3
1951	7.9
1952	1.9
1953	0.8
1954	0.7
1955	-0.4
1956	1.5
1957	3.3
1958	2.8
1959	0.7
1960	1.7
1961	1.0
1962	1.0
1963	1.3
1964	1.3
1965	1.6
1966	2.9
1967	3.1
1968	4.2
1969	5.5
1970	5.7
1971	4.4
1972	3.2
1973	6.2
1974	11.0
1975	9.1
1976	5.8
1977	6.5
1978	7.6
1979	11.3
1980	13.5
1981	10.3
1982	6.2
1983	3.2
1984	4.3
1985	3.6
1986	1.9
1987	3.6
1988	4.1
1989	4.8
1990	5.4
1991	4.2
1992	3.0
1993	3.0
1994	2.6
1995	2.8
1996	3.0
1997	2.3
1998	1.6
1999	2.2
2000	3.4
2001	2.8
2002	1.6
2003	2.3
2004	2.7
2005	3.4
2006	3.2
2007	2.8
2008	3.8
2009	-0.4
2010	1.6
2011	3.2
2012	2.1
2013	1.5
2014	1.6
2015	0.1
2016	1.3
2017	2.1
2018	2.4
2019	1.8
2020	1.2

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-14 provides the consumer price index excluding food and energy from 1957 to 2021. There is long-term inflation in the US without episodes of persistent deflation.

Chart I-14, US, Consumer Price Index Excluding Food and Energy, NSA, 1957-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-15 provides 12-month percentage changes of the consumer price index excluding food and energy from 1958 to 2021. There are three waves of inflation in the 1970s during the Great Inflation. There is no episode of deflation.

Chart I-15, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 1958-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

The consumer price index of housing is in Chart I-16. There was also acceleration during the Great Inflation of the 1970s. The index flattens after the global recession in IVQ2007 to IIQ2009. Housing prices collapsed under the weight of construction of several times more housing than needed. Surplus housing originated in subsidies and artificially low interest rates in the shock of unconventional monetary policy in 2003 to 2004 in fear of deflation.

Chart I-16, US, Consumer Price Index Housing, NSA, 1967-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-17 provides 12-month percentage changes of the housing CPI. The Great Inflation also had extremely high rates of housing inflation. Housing is considered as potential hedge of inflation.

Chart I-17, US, Consumer Price Index, Housing, 12- Month Percentage Change, NSA, 1968-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

ID Current US Inflation. Consumer price inflation has fluctuated in recent months. Table I-3 provides 12-month consumer price inflation in Oct 2021 and annual equivalent percentage changes for the months from Aug 2021 to Oct 2021 of the CPI and major segments. The final column provides inflation from Sep 2021 to Oct 2021. CPI inflation increased 6.2 percent in the 12 months ending in Oct 2021. The annual equivalent rate from Aug 2021 to Oct 2021 was 6.6 percent in the new episode of reversal and renewed positions of carry trades from zero interest rates to commodities exposures with increasing fiscal imbalances; and the monthly inflation rate of 0.9 percent annualizes at 11.4 percent with oscillating carry trades at the margin. These inflation rates fluctuate in accordance with inducement of risk appetite or frustration by risk aversion of carry trades from zero interest rates to commodity futures. At the margin, the decline in commodity prices in sharp recent risk aversion in commodities markets caused lower inflation worldwide (with return in some countries in Dec 2012 and Jan-Feb 2013) that followed a jump in Aug-Sep 2012 because of the relaxed risk aversion resulting from the bond-buying program of the European Central Bank or Outright Monetary Transactions (OMT) (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html). Carry trades moved away from commodities into stocks with resulting weaker commodity prices and stronger equity valuations. There is reversal of exposures in commodities but with preferences of equities by investors. Geopolitical events in Eastern Europe and the Middle East together with economic conditions worldwide are inducing risk concerns in commodities at the margin. With zero or very low interest rates, commodity prices would increase again in an environment of risk appetite, as shown in past oscillating inflation. Excluding food and energy, core CPI inflation was 4.6 percent in the 12 months ending in Oct 2021, 3.7 percent in annual equivalent from Aug 2021 to Oct 2021 and 0.6 percent in Oct 2021, which annualizes at 7.4 percent. There is no deflation in the US economy that could justify further unconventional monetary policy, which is now open-ended or forever with very low interest rates and cessation of bond-buying by the central bank but with reinvestment of interest and principal, or QE→∞ even if the economy grows back to potential. The FOMC is engaging in renewed increases in the Fed balance sheet. Financial repression of very low interest rates is now intended as a permanent distortion of resource allocation by clouding risk/return decisions, preventing the economy from expanding along its optimal growth path. The FOMC had engaged in recent increases of purchases of securities after reducing interest rates in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). On Aug 27, 2020, the Federal Open Market Committee changed its Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee's ability to promote maximum employment in the face of significant economic disturbances. In order to anchor longer-term inflation expectations at this level, the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.” The new policy can affect relative exchange rates depending on relative inflation rates and country risk issues. Consumer food prices in the US increased 5.3 percent in 12 months ending in Oct 2021 and changed at 9.2 percent in annual equivalent from Aug 2021 to Oct 2021. Monetary policies stimulating carry trades of commodities futures that increase prices of food constitute a highly regressive tax on lower income families for whom food is a major portion of the consumption basket especially with wage increases below inflation in a recovery without hiring (https://cmpassocregulationblog.blogspot.com/2021/10/total-nonfarm-hires-move-from-4986.html and earlier https://cmpassocregulationblog.blogspot.com/2021/09/total-nonfarm-hires-move-from-4986.html). Energy consumer prices increased 30.0 percent in 12 months, increased at 37.5 percent in annual equivalent from Aug 2021 to Oct 2021 and increased 4.8 percent in Oct 2021 or at 75.5 percent in annual equivalent. Waves of inflation are induced by carry trades from zero interest rates to commodity futures, which are unwound and repositioned during alternating risk aversion and risk appetite originating in the European debt crisis and increasingly in growth, soaring debt and politics in China. For lower income families, food and energy are a major part of the family budget. Inflation is not persistently low or threatening deflation in annual equivalent in any of the categories in Table I-2 but simply reflecting waves of inflation originating in carry trades. Zero interest rates induce carry trades into commodity futures positions with episodes of risk aversion and portfolio reallocations causing fluctuations that determine an upward trend of prices. There are now exceptional effects on prices in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021).

Table I-3, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%

	% RI	∆% 12 Months Oct 2021/Oct 2020 NSA	∆% Annual Equivalent Aug 2021 to Oct 2021 SA	∆% Oct 2021/Sep 2021 SA
CPI All Items	100.000	6.2	6.6	0.9
CPI ex Food and Energy	78.701	4.6	3.7	0.6
Food	13.977	5.3	9.2	0.9
Food at Home	7.716	5.4	10.9	1.0
Food Away from Home	6.261	5.3	7.0	0.8
Energy	7.322	30.0	37.5	4.8
Gasoline	3.830	49.6	48.4	6.1
Electricity	2.469	6.5	15.4	1.8
Gas Service	0.773	28.1	53.1	6.6
Commodities less Food and Energy	20.686	8.4	6.2	1.0
New Vehicles	3.834	9.8	16.8	1.4
Used Cars and Trucks	3.291	26.4	1.0	2.5
Medical Care Commodities	1.496	-0.4	2.8	0.6
Apparel	2.727	4.3	-2.8	0.0
Services Less Energy Services	58.016	3.2	2.4	0.4
Shelter	32.576	3.5	4.5	0.5
Rent of Primary Residence	7.613	2.7	4.9	0.4
Owner’s Equivalent Rent of Residences	23.594	3.1	4.5	0.4
Transportation Services	5.018	4.5	-9.3	0.4
Medical Care Services	7.024	1.7	2.8	0.5

% RI: Percent Relative Importance

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/

Table I-4 provides relative important components of the consumer price index. The relative important weights for Oct 2021 are in Table I-3.

Table I-4, US, Relative Importance, 2009-2010 Weights, of Components in the Consumer Price Index, US City Average, Dec 2012

All Items	100.000
Food and Beverages	15.261
Food	14.312
Food at home	8.898
Food away from home	5.713
Housing	41.021
Shelter	31.681
Rent of primary residence	6.545
Owners’ equivalent rent	22.622
Apparel	3.564
Transportation	16.846
Private Transportation	15.657
New vehicles	3.189
Used cars and trucks	1.844
Motor fuel	5.462
Gasoline	5.274
Medical Care	7.163
Medical care commodities	1.714
Medical care services	5.448
Recreation	5.990
Education and Communication	6.779
Other Goods and Services	3.376

Refers to all urban consumers, covering approximately 87 percent of the US population (see http://www.bls.gov/cpi/cpiovrvw.htm#item1). Source: US Bureau of Labor Statistics http://www.bls.gov/cpi/cpiri2011.pdf http://www.bls.gov/cpi/cpiriar.htm http://www.bls.gov/cpi/cpiri2012.pdf

Chart I-18 provides the US consumer price index for housing from 2001 to 2021. Housing prices rose sharply during the decade until the bump of the global recession and increased again in 2011-2012 with some stabilization in 2013. There is renewed increase in 2014 followed by stabilization and renewed increase in 2015-2021. The CPI excluding housing would likely show much higher inflation. The commodity carry trades resulting from unconventional monetary policy have compressed income remaining after paying for indispensable shelter.

Chart I-18, US, Consumer Price Index, Housing, NSA, 2001-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-19 provides 12-month percentage changes of the housing CPI. Percentage changes collapsed during the global recession but have been rising into positive territory in 2011 and 2012-2013 but with the rate declining and then increasing into 2014. There is decrease into 2015 followed by stability and marginal increase in 2016-2021 followed by initial decline in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021) with sharp recovery.

Chart I-19, US, Consumer Price Index, Housing, 12-Month Percentage Change, NSA, 2001-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

There have been waves of consumer price inflation in the US in 2011 and into 2021 (https://cmpassocregulationblog.blogspot.com/2021/10/cumulative-growth-of-us-manufacturing.html and earlier https://cmpassocregulationblog.blogspot.com/2021/09/world-inflation-waves-high-inflation.html) that are illustrated in Table I-5. The first wave occurred in Jan-Apr 2011 and was caused by the carry trade of commodity prices induced by unconventional monetary policy of zero interest rates. Cheap money at zero opportunity cost in environment of risk appetite was channeled into financial risk assets, causing increases in commodity prices. The annual equivalent rate of increase of the all-items CPI in Jan-Apr 2011 was 4.9 percent and the CPI excluding food and energy increased at annual equivalent rate of 1.8 percent. The second wave occurred during the collapse of the carry trade from zero interest rates to exposures in commodity futures because of risk aversion in financial markets created by the sovereign debt crisis in Europe. The annual equivalent rate of increase of the all-items CPI dropped to 1.8 percent in May-Jun 2011 while the annual equivalent rate of the CPI excluding food and energy increased at 2.4 percent. In the third wave in Jul-Sep 2011, annual equivalent CPI inflation rose to 3.2 percent while the core CPI increased at 2.4 percent. The fourth wave occurred in the form of increase of the CPI all-items annual equivalent rate to 1.8 percent in Oct-Nov 2011 with the annual equivalent rate of the CPI excluding food and energy remaining at 2.4 percent. The fifth wave occurred in Dec 2011 to Jan 2012 with annual equivalent headline inflation of 1.8 percent and core inflation of 2.4 percent. In the sixth wave, headline CPI inflation increased at annual equivalent 2.4 percent in Feb-Apr 2012 and 2.0 percent for the core CPI. The seventh wave in May-Jul occurred with annual equivalent inflation of minus 1.2 percent for the headline CPI in May-Jul 2012 and 2.0 percent for the core CPI. The eighth wave is with annual equivalent inflation of 6.8 percent in Aug-Sep 2012 but 5.7 percent including Oct. In the ninth wave, annual equivalent inflation in Nov 2012 was minus 2.4 percent under the new shock of risk aversion and 0.0 percent in Dec 2012 with annual equivalent of 0.0 percent in Nov 2012-Jan 2013 and 2.0 percent for the core CPI. In the tenth wave, annual equivalent of the headline CPI was 6.2 percent in Feb 2013 and 1.2 percent for the core CPI. In the eleventh wave, annual equivalent was minus 3.0 percent in Mar-Apr 2013 and 0.6 percent for the core index. In the twelfth wave, annual equivalent inflation was 1.4 percent in May-Sep 2013 and 2.2 percent for the core CPI. In the thirteenth wave, annual equivalent CPI inflation in Oct-Nov 2013 was 1.8 percent and 1.8 percent for the core CPI. Inflation returned in the fourteenth wave at 2.4 percent for the headline CPI index and 1.8 percent for the core CPI in annual equivalent for Dec 2013 to Mar 2014. In the fifteenth wave, inflation moved to annual equivalent 1.8 percent for the headline index in Apr-Jul 2014 and 2.1 percent for the core index. In the sixteenth wave, annual equivalent inflation was 0.0 percent in Aug 2014 and 1.2 percent for the core index. In the seventeenth wave, annual equivalent inflation was 0.0 percent for the headline CPI and 2.4 percent for the core in Sep-Oct 2014. In the eighteenth wave, annual equivalent inflation was minus 4.3 percent for the headline index in Nov 2014-Jan 2015 and 1.2 percent for the core. In the nineteenth wave, annual equivalent inflation was 3.2 percent for the headline index and 2.2 percent for the core index in Feb-Jun 2015. In the twentieth wave, annual equivalent inflation was at 2.4 percent in Jul 2015 for the headline and core indexes. In the twenty-first wave, headline consumer prices decreased at 1.2 percent in annual equivalent in Aug-Sep 2015 while core prices increased at annual equivalent 1.8 percent. In the twenty-second wave, consumer prices increased at annual equivalent 1.2 percent for the central index and 2.4 percent for the core in Oct-Nov 2015. In the twenty-third wave, annual equivalent inflation was minus 0.6 percent for the headline CPI in Dec 2015 to Jan 2016 and 1.8 percent for the core. In the twenty-fourth wave, annual equivalent was minus 1.2 percent and 2.4 percent for the core in Feb 2016. In the twenty-fifth wave, annual equivalent inflation was at 4.3 percent for the central index in Mar-Apr 2016 and at 3.0 percent for the core index. In the twenty-sixth wave, annual equivalent inflation was 3.0 percent for the central CPI in May-Jun 2016 and 2.4 percent for the core CPI. In the twenty-seventh wave, annual equivalent inflation was minus 1.2 percent for the central CPI and 1.2 percent for the core in Jul 2016. In the twenty-eighth wave, annual equivalent inflation was 2.4 percent for the headline CPI in Aug 2016 and 2.4 percent for the core. In the twenty-ninth wave, CPI prices increased at annual equivalent 3.0 percent in Sep-Oct 2016 while the core CPI increased at 1.8 percent. In the thirtieth wave, annual equivalent CPI prices increased at 2.4 percent in Nov-Dec 2016 while the core CPI increased at 1.8 percent. In the thirty-first wave, CPI prices increased at annual equivalent 4.9 percent in Jan 2017 while the core index increased at 2.4 percent. In the thirty-second wave, CPI prices changed at annual equivalent 1.2 percent in Feb 2017 while the core increased at 2.4 percent. In the thirty-third wave, CPI prices changed at annual equivalent 0.0 percent in Mar 2017 while the core index changed at 0.0 percent. In the thirty-fourth wave, CPI prices increased at 2.4 percent annual equivalent in Apr 2017 while the core index increased at 2.4 percent. In the thirty-fifth wave, CPI prices changed at 0.0 annual equivalent in May-Jun 2017 while core prices increased at 1.2 percent. In the thirty-sixth wave, CPI prices changed at annual equivalent 0.0 percent in Jul 2017 while core prices increased at 1.2 percent. In the thirty-seventh wave, CPI prices increased at annual equivalent 5.5 percent in Aug-Sep 2017 while core prices increased at 2.4 percent. In the thirty-eighth wave, CPI prices increased at 1.8 percent annual equivalent in Oct-Nov 2017 while core prices increased at 1.8 percent. In the thirty-ninth wave, CPI prices increased at 2.8 percent annual equivalent in Dec 2017-Feb 2018 while core prices increased at 2.8 percent. In the fortieth wave, CPI prices increased at 1.2 percent annual equivalent in Mar 2018 while core prices increased at 3.7 percent. In the forty-first wave, CPI prices increased at 3.0 percent annual equivalent in Apr-May 2018 while core prices increased at 2.4 percent. In the forty-second wave, CPI prices increased at 1.8 percent in Jun-Sep 2018 while core prices increased at 1.8 percent. In the forty-third wave, CPI prices increased at annual equivalent 3.7 percent in Oct 2018 while core prices increased at 2.4 percent. In the forty-fourth wave, CPI prices changed at minus 0.4 percent annual equivalent in Nov 2018-Jan 2019 while core prices increased at 2.4 percent. In the forty-fifth wave, CPI prices increased at 4.9 percent annual equivalent in Feb-Apr 2019 while core prices increased at 2.4 percent. In the forty-sixth wave, CPI prices changed at 0.0 percent annual equivalent in May-Jun 2019 while core prices increased at 2.4 percent. In the forty-seventh wave, CPI prices increased at 2.4 percent annual equivalent in Jul 2019 while core prices increased at 2.4 percent. In the forty-eighth wave, CPI prices increased at 1.8 percent annual equivalent in Aug-Sep 2019 while core prices increased at 2.4 percent. In the forty-ninth wave, CPI prices increased at 2.4 percent annual equivalent in Oct-Dec 2019 while core prices increased at 2.0 percent. In the fiftieth wave, CPI prices increased at 1.8 percent annual equivalent in Jan-Feb 2020 and core prices at 2.4 percent. In the fifty-first wave, CPI prices decreased at annual equivalent 4.3 percent in Mar-May 2020 while core prices decreased at 3.0 percent. In the fifty-second wave, CPI prices increased at 6.2 percent annual equivalent in Jun-Jul 2020 and core prices increased at 4.3 percent. In the fifty-third wave, CPI prices increased at annual equivalent 3.7 percent and core prices increased at 3.0 percent in Aug-Sep 2020. In the fifty-fourth wave, CPI prices increased at 1.2 percent annual equivalent and core prices at 1.2 percent in Oct 2020. In the fifty-fifth wave, CPI prices increased at 2.8 percent annual equivalent in Nov 2020-Jan 2021 and core prices at 0.8 percent. In the fifty-sixth wave, CPI prices increased at annual equivalent 6.2 percent in Feb-Mar 2021 and core prices at 6.2 percent. In the fifty-seventh wave, CPI prices increased at annual equivalent 9.6 percent in Apr-Jun 2021 and core prices at 10.5 percent. In the fifty-eight wave, CPI prices increased at annual equivalent 4.9 percent in Jul-Sep 2021 and core prices at 2.4 percent. In the fifty-ninth wave, CPI prices increased at annual equivalent 11.4 percent in Oct 2021 while core prices increased at 7.4 percent. The conclusion is that inflation accelerates and decelerates in unpredictable fashion because of shocks or risk aversion and portfolio reallocations in carry trades from zero interest rates to commodity derivatives.

Table I-5, US, Headline and Core CPI Inflation Monthly SA and 12 Months NSA ∆%

	All Items SA Month	All Items NSA 12 month	Core SA Month	Core NSA 12 months
Oct 2021	0.9	6.2	0.6	4.6
AE Oct	11.4		7.4
Sep	0.4	5.4	0.2	4.0
Aug	0.3	5.3	0.1	4.0
Jul	0.5	5.4	0.3	4.3
AE Jul-Sep	4.9		2.4
Jun	0.9	5.4	0.9	4.5
May	0.6	5.0	0.7	3.8
Apr	0.8	4.2	0.9	3.0
AE Apr-Jun	9.6		10.5
Mar	0.6	2.6	0.3	1.6
Feb	0.4	1.7	0.1	1.3
AE ∆% Feb-Mar	6.2		6.2
Jan	0.3	1.4	0.0	1.4
Dec	0.2	1.4	0.0	1.6
Nov	0.2	1.2	0.2	1.6
AE ∆% Nov-Jan	2.8		0.8
Oct	0.1	1.2	0.1	1.6
AE ∆% Oct	1.2		1.2
Sep	0.2	1.4	0.2	1.7
Aug	0.4	1.3	0.3	1.7
AE ∆% Aug-Sep	3.7		3.0
Jul	0.5	1.0	0.5	1.6
Jun	0.5	0.6	0.2	1.2
AE ∆% Jun-Jul	6.2		4.3
May	-0.1	0.1	-0.1	1.2
Apr	-0.7	0.3	-0.4	1.4
Mar	-0.3	1.5	0.0	2.1
AE ∆% Mar-May	-4.3		-3.0
Feb	0.1	2.3	0.2	2.4
Jan	0.2	2.5	0.2	2.3
AE ∆% Jan-Feb	1.8		2.4
Dec 2019	0.1	2.3	0.1	2.3
Nov	0.2	2.1	0.2	2.3
Oct	0.3	1.8	0.2	2.3
AE ∆% Oct-Dec	2.4		2.0
Sep	0.2	1.7	0.2	2.4
Aug	0.1	1.7	0.2	2.4
AE ∆% Aug-Sep	1.8		2.4
Jul	0.2	1.8	0.2	2.2
AE ∆% Jul	2.4		2.4
Jun	0.0	1.6	0.3	2.1
May	0.0	1.8	0.1	2.0
AE ∆% May-Jun	0.0		2.4
Apr	0.5	2.0	0.3	2.1
Mar	0.5	1.9	0.2	2.0
Feb	0.2	1.5	0.1	2.1
AE ∆% Feb-Apr	4.9		2.4
Jan	0.0	1.6	0.2	2.2
Dec 2018	-0.1	1.9	0.2	2.2
Nov	0.0	2.2	0.2	2.2
AE ∆% Nov-Jan	-0.4		2.4
Oct	0.3	2.5	0.2	2.1
AE ∆% Oct	3.7		2.4
Sep	0.2	2.3	0.2	2.2
Aug	0.2	2.7	0.1	2.2
Jul	0.1	2.9	0.2	2.4
Jun	0.1	2.9	0.1	2.3
AE ∆% Jun-Sep	1.8		1.8
May	0.2	2.8	0.2	2.2
Apr	0.3	2.5	0.2	2.1
AE ∆% Apr-May	3.0		2.4
Mar	0.1	2.4	0.3	2.1
AE ∆% Mar	1.2		3.7
Feb	0.2	2.2	0.2	1.8
Jan	0.4	2.1	0.3	1.8
Dec 2017	0.1	2.1	0.2	1.8
AE ∆% Dec-Feb	2.8		2.8
Nov	0.3	2.2	0.1	1.7
Oct	0.0	2.0	0.2	1.8
AE ∆% Oct-Nov	1.8		1.8
Sep	0.5	2.2	0.2	1.7
Aug	0.4	1.9	0.2	1.7
AE ∆% Aug-Sep	5.5		2.4
Jul	0.0	1.7	0.1	1.7
AE ∆% Jul	0.0		1.2
Jun	0.1	1.6	0.1	1.7
May	-0.1	1.9	0.1	1.7
AE ∆% May-Jun	0.0		1.2
Apr	0.2	2.2	0.2	1.9
AE ∆% Apr	2.4		2.4
Mar	0.0	2.4	0.0	2.0
AE ∆% Mar	0.0		0.0
Feb	0.1	2.7	0.2	2.2
AE ∆% Feb	1.2		2.4
Jan	0.4	2.5	0.2	2.3
AE ∆% Jan	4.9		2.4
Dec 2016	0.3	2.1	0.2	2.2
Nov	0.1	1.7	0.1	2.1
AE ∆% Nov-Dec	2.4		1.8
Oct	0.2	1.6	0.1	2.1
Sep	0.3	1.5	0.2	2.2
AE ∆% Sep-Oct	3.0		1.8
Aug	0.2	1.1	0.2	2.3
AE ∆ Aug	2.4		2.4
Jul	-0.1	0.8	0.1	2.2
AE ∆% Jul	-1.2		1.2
Jun	0.3	1.0	0.2	2.2
May	0.2	1.0	0.2	2.2
AE ∆% May-Jun	3.0		2.4
Apr	0.4	1.1	0.3	2.1
Mar	0.3	0.9	0.2	2.2
AE ∆% Mar-Apr	4.3		3.0
Feb	-0.1	1.0	0.2	2.3
AE ∆% Feb	-1.2		2.4
Jan	0.0	1.4	0.2	2.2
Dec 2015	-0.1	0.7	0.1	2.1
AE ∆% Dec-Jan	-0.6		1.8
Nov	0.1	0.5	0.2	2.0
Oct	0.1	0.2	0.2	1.9
AE ∆% Oct-Nov	1.2		2.4
Sep	-0.2	0.0	0.2	1.9
Aug	0.0	0.2	0.1	1.8
AE ∆% Aug-Sep	-1.2		1.8
Jul	0.2	0.2	0.2	1.8
AE ∆% Jul	2.4		2.4
Jun	0.3	0.1	0.2	1.8
May	0.3	0.0	0.1	1.7
Apr	0.1	-0.2	0.2	1.8
Mar	0.3	-0.1	0.2	1.8
Feb	0.3	0.0	0.2	1.7
AE ∆% Feb-Jun	3.2		2.2
Jan	-0.6	-0.1	0.1	1.6
Dec 2014	-0.3	0.8	0.1	1.6
Nov	-0.2	1.3	0.1	1.7
AE ∆% Nov-Jan	-4.3		1.2
Oct	0.0	1.7	0.2	1.8
Sep	0.0	1.7	0.2	1.7
AE ∆% Sep-Oct	0.0		2.4
Aug	0.0	1.7	0.1	1.7
AE ∆% Aug	0.0		1.2
Jul	0.1	2.0	0.2	1.9
Jun	0.1	2.1	0.1	1.9
May	0.2	2.1	0.2	2.0
Apr	0.2	2.0	0.2	1.8
AE ∆% Apr-Jul	1.8		2.1
Mar	0.2	1.5	0.2	1.7
Feb	0.1	1.1	0.1	1.6
Jan	0.2	1.6	0.1	1.6
Dec 2013	0.3	1.5	0.2	1.7
AE ∆% Dec-Mar	2.4		1.8
Nov	0.2	1.2	0.2	1.7
Oct	0.1	1.0	0.1	1.7
AE ∆% Oct-Nov	1.8		1.8
Sep	0.0	1.2	0.2	1.7
Aug	0.2	1.5	0.2	1.8
Jul	0.2	2.0	0.2	1.7
Jun	0.2	1.8	0.2	1.6
May	0.0	1.4	0.1	1.7
AE ∆% May-Sep	1.4		2.2
Apr	-0.2	1.1	0.0	1.7
Mar	-0.3	1.5	0.1	1.9
AE ∆% Mar-Apr	-3.0		0.6
Feb	0.5	2.0	0.1	2.0
AE ∆% Feb	6.2		1.2
Jan	0.2	1.6	0.2	1.9
Dec 2012	0.0	1.7	0.2	1.9
Nov	-0.2	1.8	0.1	1.9
AE ∆% Nov-Jan	0.0		2.0
Oct	0.3	2.2	0.2	2.0
Sep	0.5	2.0	0.2	2.0
Aug	0.6	1.7	0.1	1.9
AE ∆% Aug-Oct	5.7		2.0
Jul	0.0	1.4	0.2	2.1
Jun	-0.1	1.7	0.2	2.2
May	-0.2	1.7	0.1	2.3
AE ∆% May-Jul	-1.2		2.0
Apr	0.2	2.3	0.2	2.3
Mar	0.2	2.7	0.2	2.3
Feb	0.2	2.9	0.1	2.2
AE ∆% Feb-Apr	2.4		2.0
Jan	0.3	2.9	0.2	2.3
Dec 2011	0.0	3.0	0.2	2.2
AE ∆% Dec-Jan	1.8		2.4
Nov	0.2	3.4	0.2	2.2
Oct	0.1	3.5	0.2	2.1
AE ∆% Oct-Nov	1.8		2.4
Sep	0.2	3.9	0.1	2.0
Aug	0.3	3.8	0.3	2.0
Jul	0.3	3.6	0.2	1.8
AE ∆% Jul-Sep	3.2		2.4
Jun	0.0	3.6	0.2	1.6
May	0.3	3.6	0.2	1.5
AE ∆% May-Jun	1.8		2.4
Apr	0.5	3.2	0.1	1.3
Mar	0.5	2.7	0.1	1.2
Feb	0.3	2.1	0.2	1.1
Jan	0.3	1.6	0.2	1.0
AE ∆% Jan-Apr	4.9		1.8
Dec 2010	0.4	1.5	0.1	0.8
Nov	0.3	1.1	0.1	0.8
Oct	0.3	1.2	0.1	0.6
Sep	0.2	1.1	0.1	0.8
Aug	0.1	1.1	0.1	0.9
Jul	0.2	1.2	0.1	0.9
Jun	0.0	1.1	0.1	0.9
May	-0.1	2.0	0.1	0.9
Apr	0.0	2.2	0.0	0.9
Mar	0.0	2.3	0.0	1.1
Feb	-0.1	2.1	0.0	1.3
Jan	0.1	2.6	-0.1	1.6

Note: Core: excluding food and energy; AE: annual equivalent

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/

Chart I-20, US, Consumer Price Index, NSA, 2001-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-21, US, Consumer Price Index, 12-Month Percentage Change, NSA, 2001-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

The trend of increase of the consumer price index excluding food and energy in Chart I-22 does not reveal any threat of deflation that would justify symmetric inflation targets. There are mild oscillations in a neat upward trend.

Chart I-22, US, Consumer Price Index Excluding Food and Energy, NSA, 2001-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-23 provides 12-month percentage change of the consumer price index excluding food and energy. Past-year rates of inflation fell toward 1 percent from 2001 into 2003 because of the recession and the decline of commodity prices beginning before the recession with declines of real oil prices. Near zero interest rates with fed funds at 1 percent between Jun 2003 and Jun 2004 stimulated carry trades of all types, including in buying homes with subprime mortgages in expectation that low interest rates forever would increase home prices permanently, creating the equity that would permit the conversion of subprime mortgages into creditworthy mortgages (Gorton 2009EFM; see https://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Inflation rose and then collapsed during the unwinding of carry trades and the housing debacle of the global recession. Carry trades into 2011 and 2012 gave a new impulse to CPI inflation, all items and core. Symmetric inflation targets destabilize the economy by encouraging hunts for yields that inflate and deflate financial assets, obscuring risk/return decisions on production, investment, consumption and hiring. There is sharp increase in 2021.

Chart I-23, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2001-2021

Source: US Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

Headline and core producer price indexes are in Table I-6. The headline PPI SA increased 1.2 percent in Oct 2021 and increased 12.5 percent NSA in the 12 months ending in Oct 2021. The core PPI SA increased 0.3 percent in Oct 2021 and increased 5.5 percent in 12 months. Analysis of annual equivalent rates of change shows inflation waves similar to those worldwide. In the first wave, the absence of risk aversion from the sovereign risk crisis in Europe motivated the carry trade from zero interest rates into commodity futures that caused the annual equivalent rate of 11.1 percent in the headline PPI in Jan-Apr 2011 and 3.7 percent in the core PPI. In the second wave, commodity futures prices collapsed in Jun 2011 with the return of risk aversion originating in the sovereign risk crisis of Europe. The annual equivalent rate of headline PPI inflation collapsed to 0.6 percent in May-Jun 2011 but the core annual equivalent inflation rate was higher at 2.4 percent. In the third wave, headline PPI inflation resuscitated with annual equivalent at 4.1 percent in Jul-Sep 2011 and core PPI inflation at 3.2 percent. Core PPI inflation was persistent throughout 2011, jumping from annual equivalent at 2.0 percent in the first three months of 2010 to 3.0 percent in 12 months ending in Dec 2011. Unconventional monetary policy is based on the proposition that core rates reflect more fundamental inflation and are thus better predictors of the future. In practice, the relation of core and headline inflation is as difficult to predict as future inflation (see IIID Supply Shocks in https://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html). In the fourth wave, risk aversion originating in the lack of resolution of the European debt crisis caused unwinding of carry trades with annual equivalent headline PPI inflation of 0.0 percent in Oct-Dec 2011 and 2.0 percent in the core annual equivalent. In the fifth wave from Jan to Mar 2012, annual equivalent inflation was 3.2 percent for the headline index but 3.2 percent for the core index excluding food and energy. In the sixth wave, annual equivalent inflation in Apr-May 2012 during renewed risk aversion was minus 4.1 percent for the headline PPI and 1.8 percent for the core. In the seventh wave, continuing risk aversion caused reversal of carry trades into commodity exposures with annual equivalent headline inflation of minus 1.2 percent in Jun-Jul 2012 while core PPI inflation was at annual equivalent 3.7 percent. In the eighth wave, relaxed risk aversion because of the announcement of the impaired bond buying program or Outright Monetary Transactions (OMT) of the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) induced carry trades that drove annual equivalent inflation of producer prices of the United States at 13.4 percent in Aug-Sep 2012 and 1.2 percent in the core index. In the ninth wave, renewed risk aversion caused annual equivalent inflation of minus 2.4 percent in Oct 2012-Dec 2012 in the headline index and 1.2 percent in the core index. In the tenth wave, annual equivalent inflation was 7.4 percent in the headline index in Jan-Feb 2013 and 1.8 percent in the core index. In the eleventh wave, annual equivalent inflation was minus 7.0 percent in Mar-Apr 2012 and 1.2 percent for the core index. In the twelfth wave, annual equivalent inflation returned at 2.7 percent in May-Aug 2013 and 1.2 percent in the core index. In the thirteenth wave, portfolio reallocations away from commodities and into equities reversed commodity carry trade with annual equivalent inflation of 0.8 percent in Sep-Nov 2013 in the headline PPI and 1.6 percent in the core. In the fourteenth wave, annual equivalent inflation returned at 5.7 percent annual equivalent for the headline index in Dec 2013-Feb 2014 and 3.7 percent for the core index. In the fifteenth wave, annual equivalent inflation was 3.7 percent for the general PPI index in Mar 2014 and 0.0 percent for the core PPI index. In the sixteenth wave, annual equivalent headline PPI inflation increased at 0.9 percent in Apr-Jul 2014 and 1.8 percent for the core PPI. In the seventeenth wave, annual equivalent inflation in Aug-Nov 2014 was minus 2.7 percent and 1.8 percent for the core index. In the eighteenth wave, annual equivalent inflation fell at 17.6 percent for the general index in Dec 2014 to Jan 2015 and increased at 3.7 percent in the core index. In the nineteenth wave, annual equivalent inflation increased at 1.2 percent in Feb 2015 and increased at 3.7 percent for the core index. In the twentieth wave, annual equivalent producer prices increased at 4.9 percent in Mar 2015 and the core at 1.2 percent. In the twenty-first wave, producer prices fell at 8.1 percent annual equivalent in Apr 2015 while the core index increased at 1.2 percent. In the twenty-second wave, producer prices increased at annual equivalent 10.7 percent in May-Jun 2015 and core producer prices at 2.8 percent. In the twenty-third wave, producer prices fell at 1.2 percent in Jul 2015 and the core index increased at 2.4 percent. In the twenty-fourth wave, annual equivalent inflation fell at 7.4 percent in Aug-Oct 2015 and the core index changed at 0.0 percent annual equivalent. In the twenty-fifth wave, annual equivalent inflation was 1.2 percent in Nov 2015 with the core at 1.2 percent. In the twenty-sixth wave, the headline PPI fell at annual equivalent 6.6 percent and the core increased at 2.0 percent in Dec 2015-Feb 2016. In the twenty-seventh wave, annual equivalent inflation was 3.7 percent for the central index in Mar-May 2016 and 1.6 percent for the core. In the twenty-eighth wave, annual equivalent inflation was 8.7 percent for the headline index in Jun 2016 and 3.7 percent for the core. In the twenty-ninth wave, producer prices changed at annual equivalent 0.0 percent in Jul 2016 and core producer prices changed at 0.0 percent. In the thirtieth wave, producer prices fell at 3.5 percent annual equivalent in Aug 2016 while core producer prices increased at 1.2 percent. In the thirty-first wave, producer prices increased at annual equivalent 6.2 percent in Sep-Oct 2016 while core prices increased at 1.8 percent. In the thirty-second wave, producer prices decreased at 2.4 percent annual equivalent in Nov 2016 and the core index increased at 1.2 percent. In the thirty-third wave, producer prices increased at 11.4 percent in Dec 2016 and the core index increased at 2.4 percent. In the thirty-fourth wave, producer prices increased at 8.7 percent in Jan 2017 while the core increased at 3.7 percent. In the thirty-fifth wave, producer prices increased at 4.9 percent in Feb 2017 while the core index increased at 1.2 percent. In the thirty-sixth wave, producer prices increased at annual equivalent 1.2 percent in Mar 2017 while core producer prices increased at 3.7 percent. In the thirty-seventh wave, annual equivalent inflation of the headline index was at 6.2 percent in Apr 2017 and 3.7 percent for the core. In the thirty-eighth wave, producer prices fell at 10.3 percent annual equivalent in May 2017 while core producer prices increased at 1.2 percent. In the thirty-ninth wave, producer prices increased at annual equivalent 1.2 percent in Jun 2017 while core producer prices increased at 2.4 percent. In the fortieth wave, headline producer prices changed at 0.0 percent annual equivalent in Jul 2017 while core prices increased at 1.2 percent. In the forty-first wave, central producer prices increased at 8.1 percent annual equivalent in Aug-Sep 2017 while core prices increased at 0.6 percent. In the forty-second wave, producer prices increased at annual equivalent 7.4 percent in Oct-Nov 2017 while core producer prices increased at 4.9 percent. In the forty-third wave, producer prices changed at annual equivalent 0.0 percent in Dec 2017 while core prices changed at 0.0 percent. In the forty-fourth wave, producer prices increased at 3.7 percent annual equivalent in Jan 2018 while core producer prices changed at 1.2 percent. In the forty-fifth wave, producer prices increased at annual equivalent 3.7 percent in Feb 2018 while core prices increased at 2.4 percent. In the forty-sixth wave, producer prices increased at 1.2 percent annual equivalent in Mar 2018 while core prices increased at 2.4 percent. In the forty-seventh wave, producer prices changed at 0.0 percent annual equivalent in Apr 2018 while core prices increased at 2.4 percent. In the forty-eighth wave, producer prices increased at annual equivalent 6.2 percent in May 2018 while core prices increased at 2.4 percent. In the forty-ninth wave, producer prices increased at annual equivalent 1.2 percent in Jun-Jul 2018 while core prices increased at 3.0 percent. In the fiftieth wave, producer prices increased at annual equivalent 1.2 percent in Aug-Sep 2018 while core prices increased at 2.4 percent. In the fifty-first wave, producer prices increased at annual equivalent 10.0 percent in Oct 2018 while core prices increased at 3.7 percent. In the fifty-second wave, producer prices decreased at annual equivalent 7.7 percent in Nov 2018-Jan 2019 while core prices increased at 2.8 percent. In the fifty-third wave, producer prices increased at annual equivalent 9.6 percent in Feb-Apr 2019 while core prices increased at 0.8 percent. In the fifty-fourth wave, producer prices decreased at annual equivalent 4.7 percent in May-Jun 2019 while core prices increased at 1.2 percent. In the fifty-fifth wave, producer prices increased at annual equivalent 2.4 percent in Jul 2019 while core prices increased at 1.2 percent. In the fifty-sixth wave, producer prices fell at annual equivalent 2.4 percent in Aug-Sep 2019 while core prices changed at 0.0 percent. In the fifty-seventh wave, producer prices increased at annual equivalent 4.5 percent in Oct-Dec 2019 while core prices increased at 0.8 percent. In the fifty-eighth wave, producer prices increased at 1.2 percent annual equivalent in Jan 2020 while core prices changed at 0.0 percent. In the fifty-ninth wave, producer prices decreased at annual equivalent 20.3 percent in Feb-Apr 2020 while core prices increased at 2.0 percent. In the sixtieth wave, producer prices increased at annual equivalent 26.8 percent in May 2020 while core prices changed at 0.0 percent. In the sixty-first wave, producer prices increased at annual equivalent 4.9 percent in Jun-Jul 2020 while core prices increased at 1.2 percent. In the sixty-second wave, producer prices increased at annual equivalent 1.2 percent in Aug 2020 while core prices increased at 1.2 percent. In the sixty-third wave, producer prices increased at annual equivalent 4.1 percent in Sep-Nov 2020 while core prices increased at 1.2 percent. In the sixty-fourth wave, producer prices increased at annual equivalent 6.2 percent in Dec 2020 while core prices increased at 1.2 percent. In the sixty-fifth wave, producer prices increased at annual equivalent 18.2 percent in Jan-Mar 2021 while producer prices increased at 4.1 percent. In the sixty-sixth wave, producer prices increased at annual equivalent 4.9 percent in Apr 2021 while core prices increased at 7.4 percent. In the sixty-seventh wave, producer prices increased at annual equivalent 14.0 percent in May-Jun 2021 while core prices increased at 8.7 percent. In the sixty-eighth wave, producer prices increased at 4.9 percent in Jul 2021 while core prices increased at 8.7 percent. In the sixty-nineth wave, producer prices increased at annual equivalent 12.7 percent in Aug 2021 while core prices increased at 6.2 percent. In the seventieth wave, producer prices increased at 17.5 percent in Sep-Oct 2021 while core prices increased at 5.5 percent. It is almost impossible to forecast PPI inflation and its relation to CPI inflation. “Inflation surprise” by monetary policy could be proposed to climb along a downward sloping Phillips curve, resulting in higher inflation but lower unemployment (see Kydland and Prescott 1977, Barro and Gordon 1983 and past comments of this blog http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). The architects of monetary policy would require superior inflation forecasting ability compared to forecasting naivety by everybody else. In practice, we are all naïve in forecasting inflation and other economic variables and events.

Table I-6, US, Headline and Core PPI Inflation Monthly SA and 12-Month NSA ∆%

	Finished Goods SA Month	Finished Goods NSA 12 months	Finished Core SA Month	Finished Core NSA 12 months
Oct 2021	1.2	12.5	0.3	5.5
Sep	1.5	11.8	0.6	5.2
AE Sep-Oct	17.5		5.5
Aug	1.0	10.5	0.5	4.6
AE Aug	12.7		6.2
Jul	0.4	9.6	0.7	4.3
AE Jul	4.9		8.7
Jun	1.3	9.7	0.7	3.7
May	0.9	8.7	0.7	3.0
AE May-Jun	14.0		8.7
Apr	0.4	9.7	0.6	2.3
AE Apr	4.9		7.4
Mar	1.2	5.9	0.4	2.0
Feb	1.6	2.5	0.3	1.7
Jan	1.4	0.4	0.3	1.6
AE Jan-Mar	18.2		4.1
Dec 2020	0.5	-0.8	0.1	1.3
AE Dec	6.2		1.2
Nov	0.3	-1.3	0.3	1.2
Oct	0.5	-1.2	0.0	1.1
Sep	0.2	-1.2	0.0	1.2
AE Sep-Nov	4.1		1.2
Aug	0.1	-1.6	0.1	1.2
AE Aug	1.2		1.2
Jul	0.4	-2.0	0.2	1.1
Jun	0.4	-2.3	0.0	1.1
AE Jun-Jul	4.9		1.2
May	2.0	-3.2	0.0	1.1
AE May	26.8		0.0
Apr	-2.9	-5.3	0.2	1.3
Mar	-2.1	-1.5	0.0	1.1
Feb	-0.6	1.3	0.3	1.2
AE Feb-Apr	-20.3		2.0
Jan	0.1	2.5	0.0	1.0
AE Jan	1.2		0.0
Dec 2019	0.1	1.7	0.0	1.5
Nov	0.4	1.0	0.1	1.6
Oct	0.6	-0.2	0.1	1.7
AE Oct-Dec	4.5		0.8
Sep	-0.1	-0.1	0.0	1.9
Aug	-0.3	0.3	0.0	2.0
AE Aug-Sep	-2.4		0.0
Jul	0.2	0.7	0.1	2.2
AE Jul	2.4		1.2
Jun	-0.6	0.5	0.0	2.3
May	-0.2	1.3	0.2	2.5
AE May-Jun	-4.7		1.2
Apr	0.8	2.1	0.0	2.5
Mar	1.0	1.4	0.1	2.7
Feb	0.5	0.5	0.1	2.7
AE Feb-Apr	9.6		0.8
Jan	-0.6	0.4	0.4	2.9
Dec 2018	-0.7	1.3	0.1	2.6
Nov	-0.7	2.0	0.2	2.6
AE Nov-Jan	-7.7		2.8
Oct	0.8	3.7	0.3	2.5
AE Oct	10.0		3.7
Sep	0.1	3.2	0.2	2.8
Aug	0.1	3.7	0.2	2.6
AE Aug-Sep	1.2		2.4
Jul	0.1	4.3	0.3	2.4
Jun	0.1	4.1	0.2	2.1
AE Jun-Jul	1.2		3.0
May	0.5	4.1	0.2	2.1
AE May	6.2		2.4
Apr	0.0	2.4	0.2	1.9
AE Apr	0.0		2.4
Mar	0.1	3.0	0.2	2.0
AE Mar	1.2		2.4
Feb	0.3	2.7	0.2	2.0
AE Feb	3.7		2.4
Jan	0.3	2.9	0.1	1.8
AE Jan	3.7		1.2
Dec 2017	0.0	3.2	0.0	2.0
AE Dec	0.0		0.0
Nov	1.0	4.2	0.3	2.1
Oct	0.2	2.9	0.5	2.0
AE Oct-Nov	7.4		4.9
Sep	0.7	3.3	-0.1	1.7
Aug	0.6	3.0	0.2	1.8
AE Aug-Sep	8.1		0.6
Jul	0.0	2.1	0.1	1.8
AE Jul	0.0		1.2
Jun	0.1	2.1	0.2	1.7
AE Jun	1.2		2.4
May	-0.9	2.8	0.1	1.9
AE May	-10.3		1.2
Apr	0.5	4.0	0.3	2.0
AE Apr	6.2		3.7
Mar	0.1	3.8	0.3	1.8
AE Mar	1.2		3.7
Feb	0.4	3.8	0.1	1.6
AE Feb	4.9		1.2
Jan	0.7	2.9	0.3	1.7
AE Jan	8.7		3.7
Dec 2016	0.9	1.9	0.2	1.7
AE Dec	11.4		2.4
Nov	-0.2	0.4	0.1	1.6
AE Nov	-2.4		1.2
Oct	0.6	0.7	0.2	1.6
Sep	0.4	-0.1	0.1	1.4
AE Sep-Oct	6.2		1.8
Aug	-0.3	-1.9	0.1	1.4
AE Aug	-3.5		1.2
Jul	0.0	-2.0	0.0	1.2
AE Jul	0.0		0.0
Jun	0.7	-2.0	0.3	1.5
AE Jun	8.7		3.7
May	0.4	-2.2	0.1	1.6
Apr	0.3	-1.5	0.2	1.6
Mar	0.2	-2.3	0.1	1.5
AE Mar-May	3.7		1.6
Feb	-0.7	-2.0	0.1	1.5
Jan	-0.3	-1.2	0.3	1.7
Dec 2015	-0.7	-2.7	0.1	1.8
AE Dec-Feb	-6.6		2.0
Nov	0.1	-3.3	0.1	1.7
AE Nov	1.2		1.2
Oct	-0.3	-4.0	-0.1	1.8
Sep	-1.2	-4.1	0.1	2.1
Aug	-0.4	-3.1	0.0	2.1
AE ∆% Aug-Oct	-7.4		0.0
Jul	-0.1	-2.8	0.2	2.3
AE ∆% Jul	-1.2		2.4
Jun	0.6	-2.6	0.5	2.3
May	1.1	-2.9	0.2	2.0
AE ∆% May-Jun	10.7		2.8
Apr	-0.7	-4.5	0.1	2.0
AE ∆% Apr	-8.1		1.2
Mar	0.4	-3.3	0.1	2.1
AE ∆% Mar	4.9		1.2
Feb	0.1	-3.2	0.3	1.9
AE ∆% Feb	1.2		3.7
Jan	-1.8	-3.0	0.5	1.7
Dec 2014	-1.4	-0.6	0.1	1.7
AE ∆% Dec-Jan	-17.6		3.7
Nov	-0.3	1.1	0.0	2.0
Oct	-0.3	1.8	0.3	2.2
Sep	-0.3	2.2	0.1	2.1
Aug	0.0	2.3	0.2	1.9
AE ∆% Aug-Nov	-2.7		1.8
July	0.0	2.9	0.1	1.9
Jun	0.2	2.8	0.2	1.9
May	-0.3	2.5	0.2	1.8
Apr	0.4	3.1	0.1	1.7
AE ∆% Apr-Jul	0.9		1.8
Mar	0.3	1.8	0.0	1.7
AE ∆% Mar	3.7		0.0
Feb	0.2	1.3	0.1	1.9
Jan	0.8	1.6	0.4	2.0
Dec 2013	0.4	1.4	0.4	1.6
AE ∆% Dec-Feb	5.7		3.7
Nov	0.3	0.8	0.2	1.3
Oct	0.2	0.3	0.1	1.2
Sep	-0.3	0.2	0.1	1.2
AE ∆% Sep-Nov	0.8		1.6
Aug	0.5	1.2	0.1	1.2
Jul	-0.1	2.1	0.1	1.3
Jun	0.1	2.3	0.1	1.6
May	0.4	1.6	0.1	1.7
AE ∆% May-Aug	2.7		1.2
Apr	-0.6	0.5	0.1	1.7
Mar	-0.6	1.1	0.1	1.7
AE ∆% Mar-Apr	-7.0		1.2
Feb	0.6	1.8	0.2	1.8
Jan	0.6	1.5	0.1	1.8
AE ∆% Jan-Feb	7.4		1.8
Dec 2012	-0.2	1.4	0.0	2.1
Nov	-0.5	1.4	0.2	2.2
Oct	0.1	2.3	0.1	2.2
AE ∆% Oct-Dec	-2.4		1.2
Sep	0.9	2.1	0.0	2.4
Aug	1.2	1.9	0.2	2.6
AE ∆% Aug-Sep	13.4		1.2
Jul	0.2	0.5	0.4	2.6
Jun	-0.4	0.7	0.2	2.6
AE ∆% Jun-Jul	-1.2		3.7
May	-0.6	0.6	0.1	2.7
Apr	-0.1	1.8	0.2	2.7
AE ∆% Apr-May	-4.1		1.8
Mar	0.1	2.7	0.2	2.9
Feb	0.3	3.4	0.2	3.1
Jan	0.4	4.1	0.4	3.1
AE ∆% Jan-Mar	3.2		3.2
Dec 2011	-0.1	4.7	0.2	3.0
Nov	0.3	5.7	0.1	3.0
Oct	-0.2	5.9	0.2	2.9
AE ∆% Oct-Dec	0.0		2.0
Sep	0.9	7.1	0.3	2.8
Aug	-0.3	6.6	0.2	2.7
Jul	0.4	7.2	0.3	2.7
AE ∆% Jul-Sep	4.1		3.2
Jun	-0.4	7.0	0.3	2.3
May	0.5	7.1	0.1	2.1
AE ∆% May-Jun	0.6		2.4
Apr	0.9	6.7	0.3	2.3
Mar	0.7	5.7	0.3	2.0
Feb	1.1	5.5	0.2	1.8
Jan	0.8	3.7	0.4	1.6
AE ∆% Jan-Apr	11.0		3.7
Dec 2010	0.9	3.8	0.2	1.4
Nov	0.4	3.4	0.0	1.2
Oct	0.8	4.3	0.0	1.6
Sep	0.3	3.9	0.2	1.6
Aug	0.6	3.3	0.1	1.3
Jul	0.1	4.1	0.1	1.5
Jun	-0.3	2.7	0.1	1.1
May	0.0	5.1	0.3	1.3
Apr	0.0	5.4	0.0	0.9
Mar	0.7	5.9	0.2	0.9
Feb	-0.7	4.1	0.1	1.0
Jan	1.0	4.5	0.2	1.0

Note: Core: excluding food and energy; AE: annual equivalent

Source: US Bureau of Labor Statistics https://www.bls.gov/ppi/data.htm

The US producer price index NSA from 2000 to 2021 is in Chart I-24. There are two episodes of decline of the PPI during recessions in 2001 and in 2008. Barsky and Kilian (2004) consider the 2001 episode as one in which real oil prices were declining when recession began. Recession and the fall of commodity prices instead of generalized deflation explain the behavior of US inflation in 2008. There is similar collapse of producer prices into 2015 as in 2009 caused by the drop of

commodity prices. There is sharp increase in 2021.

Chart I-24, US, Producer Price Index, NSA, 2000-2021

Source: US Bureau of Labor Statistics

Twelve-month percentage changes of the PPI NSA from 2000 to 2021 are in Chart I-25. It may be possible to forecast trends a few months in the future under adaptive expectations but turning points are almost impossible to anticipate especially when related to fluctuations of commodity prices in response to risk aversion. In a sense, monetary policy has been tied to behavior of the PPI in the negative 12-month rates in 2001 to 2003 and then again in 2009 to 2010. There is similar sharp decline of inflation into 2015 caused by the drop of commodities. Monetary policy following deflation fears caused by commodity price fluctuations would introduce significant volatility and risks in financial markets and eventually in consumption and investment. There is sharp increase in 2021.

Chart I-25, US, Producer Price Index, 12-Month Percentage Change NSA, 2000-2021

Source: US Bureau of Labor Statistics

The US PPI excluding food and energy from 2000 to 2021 is in Chart I-26. There is here again a smooth trend of inflation instead of prolonged deflation as in Japan. Prices jump in 2021.

Chart I-26, US, Producer Price Index Excluding Food and Energy, NSA, 2000-2021

Source: US Bureau of Labor Statistics

Twelve-month percentage changes of the producer price index excluding food and energy are in Chart I-27. Fluctuations replicate those in the headline PPI. There is an evident trend of increase of 12-month rates of core PPI inflation in 2011 but lower rates in 2012-2014. Prices rose less rapidly into 2015-2018 as during earlier fluctuations. Twelve-month rates decrease in the final segment 2019-2020, increasing in 2021.

Chart I-27, US, Producer Price Index Excluding Food and Energy, NSA, 12-Month Percentage Changes, 2000-2021

Source: US Bureau of Labor Statistics

The US producer price index of energy goods from 2000 to 2021 is in Chart I-28. There is a clear upward trend with fluctuations, which would not occur under persistent deflation. There is sharp increase in 2021.

Chart I-28, US, Producer Price Index Finished Energy Goods, NSA, 2000-2021

Source: US Bureau of Labor Statistics

Chart I-29 provides 12-month percentage changes of the producer price index of energy goods from 2000 to 2021. Barsky and Killian (2004) relate the episode of declining prices of energy goods in 2001 to 2002 to the analysis of decline of real oil prices. Interest rates dropping to zero during the global recession in 2008 induced carry trades that explain the rise of the PPI of energy goods toward 30 percent. Bouts of risk aversion with policy interest rates held close to zero explain the fluctuations in the 12-month rates of the PPI of energy goods in the expansion phase of the economy. Symmetric inflation targets induce significant instability in inflation and interest rates with adverse effects on financial markets and the overall economy. Prices increase sharply in 2021.

Chart I-29, US, Producer Price Index Finished Energy Goods, 12-Month Percentage Change, NSA, 2000-2021

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi

Effective with the January 2014 Producer Price Index (PPI) data release in February 2014 (https://www.bls.gov/news.release/archives/ppi_02192014.pdf 8), “BLS transitions from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. This shift results in significant changes to the PPI news release, as well as other documents available from PPI. The transition to the FD-ID system is the culmination of a long-standing PPI objective to improve the current SOP aggregation system by incorporating PPIs for services, construction, government purchases, and exports. In comparison to the SOP system, the FD-ID system more than doubles PPI coverage of the United States economy to over 75 percent of in-scope domestic production. The FD-ID system was introduced as a set of experimental indexes in January 2011. Nearly all new FD-ID goods, services, and construction indexes provide historical data back to either November 2009 or April 2010, while the indexes for goods that correspond with the historical SOP indexes go back to the 1970s or earlier.”

Headline and core final demand producer price indexes are in Table I-6B. The headline FD PPI SA increased 0.6 percent in Oct 2021 and increased 8.6 percent NSA in the 12 months ending in Oct 2021. The core FD PPI SA increased 0.4 percent in Oct 2021 and increased 6.8 percent in 12 months. Analysis of annual equivalent rates of change shows inflation waves similar to those worldwide. In the first wave, the absence of risk aversion from the sovereign risk crisis in Europe motivated the carry trade from zero interest rates into commodity futures that caused the average equivalent rate of 7.4 percent in the headline FD PPI in Jan-Apr 2011 and 4.6 percent in the core FD PPI. In the second wave, commodity futures prices collapsed in Jun 2011 with the return of risk aversion originating in the sovereign risk crisis of Europe. The annual equivalent rate of headline FD PPI inflation collapsed to 2.4 percent in May-Jun 2011 but the core annual equivalent inflation rate was at 2.4 percent. In the third wave, headline FD PPI inflation resuscitated with annual equivalent at 3.2 percent in Jul-Sep 2011 and core PPI inflation at 3.2 percent. Core FD PPI inflation was persistent throughout 2011, from annual equivalent at 4.6 percent in the first four months of 2011 to 2.6 percent in 12 months ending in Dec 2011. Unconventional monetary policy is based on the proposition that core rates reflect more fundamental inflation and are thus better predictors of the future. In practice, the relation of core and headline inflation is as difficult to predict as future inflation (see IIID Supply Shocks in https://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html). In the fourth wave, risk aversion originating in the lack of resolution of the European debt crisis caused unwinding of carry trades with annual equivalent headline FD PPI inflation of minus 0.8 percent in Oct-Dec 2011 and minus 0.4 percent in the core annual equivalent. In the fifth wave from Jan to Mar 2012, annual equivalent inflation was 3.7 percent for the headline index and 3.7 percent for the core index excluding food and energy. In the sixth wave, annual equivalent inflation in Apr-May 2012 during renewed risk aversion was 1.2 percent for the headline FD PPI and 3.0 percent for the core. In the seventh wave, continuing risk aversion caused reversal of carry trades into commodity exposures with annual equivalent headline inflation of minus 2.4 percent in Jun-Jul 2012 while core FD PPI inflation was at annual equivalent minus 1.2 percent. In the eighth wave, relaxed risk aversion because of the announcement of the impaired bond buying program or Outright Monetary Transactions (OMT) of the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) induced carry trades that drove annual equivalent inflation of final demand producer prices of the United States at 6.2 percent in Aug-Sep 2012 and 1.2 percent in the core index. In the ninth wave, renewed risk aversion caused annual equivalent inflation of 0.8 percent in Oct 2011-Dec 2012 in the headline index and 2.8 percent in the core index. In the tenth wave, annual equivalent inflation was 3.0 percent in the headline index in Jan-Feb 2013 and 0.6 percent in the core index. In the eleventh wave, annual equivalent price change was minus 1.2 percent in Mar-Apr 2013 and 2.4 percent for the core index. In the twelfth wave, annual equivalent inflation returned at 1.8 percent in May-Aug 2013 and 1.6 percent in the core index. In the thirteenth wave, portfolio reallocations away from commodities and into equities reversed commodity carry trade with annual equivalent inflation of 1.6 percent in Sep-Nov 2013 in the headline FD PPI and 2.0 percent in the core. In the fourteenth wave, annual equivalent inflation was 2.4 percent annual equivalent for the headline index in Dec 2013-Feb 2014 and 1.6 percent for the core index. In the fifteenth wave, annual equivalent inflation increased to 2.4 percent in the headline FD PPI and 2.7 percent in the core in Mar-Jul 2014. In the sixteenth wave, annual equivalent inflation was minus 1.2 percent for the headline FD index and minus 0.6 percent for the core FD index in Aug-Sep 2014. In the seventeenth wave, annual equivalent inflation was 2.4 percent for the headline FD and 4.9 percent for the core FD in Oct 2014. In the eighteenth wave, annual equivalent inflation was minus 3.0 percent for the headline FDI and 1.2 percent for the core in Nov-Dec 2014. In the nineteenth wave, annual equivalent inflation was minus 6.4 percent for the general index and minus 2.4 percent for the core in Jan-Feb 2015. In the twentieth wave, annual equivalent inflation was 2.4 percent for the general index in Mar 2015 and 1.2 percent for the core. In the twenty-first wave, final demand prices decreased at annual equivalent 2.4 percent for the headline index in Apr 2015 and changed at 0.0 percent for the core index. In the twenty-second wave, annual equivalent inflation returned at 3.7 percent for the headline index in May-Jul 2015 and at 2.4 percent for the core index. In the twenty-third wave, the headline final demand index fell at 2.4 percent annual equivalent in Aug 2015 and the core changed at 0.0 percent annual equivalent. In the twenty-fourth wave, FD prices fell at annual equivalent 4.1 percent in Sep-Oct 2015. In the twenty-fifth wave, FD prices increased at 1.2 percent annual equivalent in Nov 2015. In the twenty-sixth wave, FD prices decreased at 1.2 percent annual equivalent in Dec 2015. In the twenty-seventh wave, FD prices increased at 4.9 percent annual equivalent in Jan 2016 and the core FD increased at 6.2 percent. In the twenty-eighth wave, FD prices fell at annual equivalent 1.8 percent in Feb-Mar 2016 while the core decreased at 0.6 percent. In the twenty-ninth wave, FD prices increased at 3.7 percent annual equivalent in Apr-Jun 2016 and core FD increased at 2.4 percent. In the thirtieth wave, final demand prices decreased at 1.2 percent in annual equivalent in Jul 2016 while the core decreased at 1.2 percent. In the thirty-first wave, final demand prices decreased at annual equivalent 2.4 percent in Aug 2016 and the core changed at 0.0 percent. In the thirty-second wave, final demand prices increased at annual equivalent 3.7 percent in Sep 2016 while core final demand increased at 2.4 percent. In the thirty-third wave, final demand prices increased at 3.7 percent and core final demand prices increased at 1.2 percent in Oct 2016. In the thirty-fourth wave, final demand producer prices increased at 3.0 percent annual equivalent in Nov-Dec 2016 while the core increased at 2.4 percent. In the thirty-fifth wave, final demand producer prices increased at 4.9 percent in Jan 2017 while core prices increased at 4.9 percent. In the thirty-sixth wave, final demand prices changed at 0.0 percent annual equivalent in Feb 2017 while the core index decreased at 1.2 percent. In the thirty-seventh wave, final demand prices increased at 2.4 percent annual equivalent in Mar 2017 while the core index increased at 2.4 percent. In the thirty-eighth wave, final demand prices increased at 4.9 percent in Apr 2017 while the core increased at 4.9 percent. In the thirty-ninth wave, final demand prices changed at annual equivalent 0.0 percent in May-Jun 2017 while core prices increased at 1.8 percent. In the fortieth wave, final demand prices increased at 1.2 percent annual equivalent in Jul 2017 while core prices increased at 2.4 percent. In the forty-first wave, final demand prices increased at 4.9 percent annual equivalent in Aug-Nov 2017 while core prices increased at 2.7 percent. In the forty-second wave, final demand prices changed at annual equivalent 0.0 percent in Dec 2017 while core prices decreased at 1.2 percent. In the forty-third wave, final demand prices increased at annual equivalent 4.1 percent in Jan-Mar 2018 while core prices increased at 4.1 percent. In the forty-fourth wave, final demand prices increased at 3.2 percent in Apr-Jun 2018 while core prices increased at 3.2 percent. In the forty-fifth wave, final demand prices increased at 0.6 percent in Jul-Aug 2018 while core prices increased at 1.2 percent. In the forty-sixth wave, final demand prices increased at 5.5 percent annual equivalent in Sep-Oct 2018 while core prices increased at 4.3 percent. In the forty-seventh wave, final demand prices decreased at 2.4 percent annual equivalent in Nov 2018 while core prices increased at 2.4 percent. In the forty-eighth wave, final demand prices decreased at 1.8 percent annual equivalent in Dec 2018-Jan 2019 while core prices increased at 1.8 percent. In the forty-ninth wave, final demand prices increased at annual equivalent 4.5 percent in Feb-Apr 2019 while core prices increased at 2.4 percent. In the fiftieth wave, final demand prices increased at 1.2 percent in May 2019 while core prices changed at 2.4 percent. In the fifty-first wave, final demand prices increased at annual equivalent 0.8 percent in Jun-Aug 2019 while core prices increased at 2.0 percent. In the fifty-second wave, final demand prices decreased at annual equivalent 3.5 percent in Sep 2019 while core prices decreased at 3.5 percent. In the fifty-third wave, final demand prices increased at 0.6 percent in Oct-Nov 2019 while core prices decreased at 0.6 percent. In the fifty-fourth wave, final demand prices increased at annual equivalent 3.7 percent in Dec 2019-Jan 2020 while core prices increased at 3.7 percent. In the fifty-fifth wave, final demand prices decreased at annual equivalent 8.1 percent in Feb-Apr 2020 while core prices decreased at 2.0 percent. In the fifty-sixth wave, final demand prices increased at annual equivalent 4.9 percent in May 2020 while core prices changed at 0.0 percent. In the fifty-seventh wave, final demand prices increased at annual equivalent 3.7 percent in Jun 2020 while core prices increased at 3.7 percent. In the fifty-eighth wave, final demand prices increased at annual equivalent 6.2 percent in Jul 2020 while core prices increased at 4.9 percent. In the fifty-ninth wave, final demand prices increased at 4.5 percent in Aug-Oct 2020 while core prices increased at 3.7 percent. In the sixtieth wave, final demand prices increased at annual equivalent 1.8 percent in Nov-Dec 2020 while core prices increased at 0.6 percent. In the sixty-first wave, final demand prices increased at annual equivalent 11.3 percent in Jan-Mar 2021 while core prices increased at 7.0 percent. In the sixty-second wave, final demand prices increased at annual equivalent 12.0 percent in Apr-May 2021 while core prices increased at 11.3 percent. In the sixty-third wave, final demand prices increased at 10.0 percent annual equivalent in Jun-Jul 2021 while core prices increased at 9.4 percent. In the sixty-fourth wave, final demand prices increased at annual equivalent 7.4 percent in Aug-Oct 2021 while core prices increased at 4.9 percent. It is almost impossible to forecast PPI inflation and its relation to CPI inflation. “Inflation surprise” by monetary policy could be proposed to climb along a downward sloping Phillips curve, resulting in higher inflation but lower unemployment (see Kydland and Prescott 1977, Barro and Gordon 1983 and past comments of this blog http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). The architects of monetary policy would require superior inflation forecasting ability compared to forecasting naivety by everybody else. In practice, we are all naïve in forecasting inflation and other economic variables and events.

Table I-6B, US, Headline and Core Final Demand Producer Price Inflation Monthly SA and 12-Month NSA ∆%

	Final Demand SA Month	Final Demand NSA 12 months	Final Demand Core SA Month	Final Demand Core NSA 12 months
Oct 2021	0.6	8.6	0.4	6.8
Sep	0.5	8.6	0.2	6.8
Aug	0.7	8.3	0.6	6.7
AE Aug-Oct	7.4		4.9
Jul	0.7	7.8	0.8	6.2
Jun	0.9	7.6	0.7	5.8
AE Jun-Jul	10.0		9.4
May	0.9	7.0	0.7	5.3
Apr	1.0	6.5	1.1	4.6
AE Apr-May	12.0		11.3
Mar	0.8	4.1	0.5	3.0
Feb	0.7	3.0	0.3	2.6
Jan	1.2	1.6	0.9	1.9
AE ∆% Jan-Mar	11.3		7.0
Dec 2020	0.3	0.8	0.2	1.4
Nov	0.0	0.8	-0.1	1.5
AE ∆% Nov-Dec	1.8		0.6
Oct	0.6	0.6	0.5	1.2
Sep	0.3	0.3	0.2	1.0
Aug	0.2	-0.3	0.2	0.5
AE ∆% Aug-Oct	4.5		3.7
Jul	0.5	-0.3	0.4	0.6
AE ∆% Jul	6.2		4.9
Jun	0.3	-0.7	0.3	0.3
AE ∆% Jun	3.7		3.7
May	0.4	-1.1	0.0	0.3
AE ∆% May	4.9		0.0
Apr	-1.1	-1.5	-0.3	0.3
Mar	-0.5	0.3	0.1	1.1
Feb	-0.5	1.1	-0.3	1.2
AE ∆% Feb-Apr	-8.1		-2.0
Jan	0.3	2.0	0.3	1.6
Dec 2019	0.3	1.4	0.3	1.3
AE ∆% Dec-Jan	3.7		3.7
Nov	-0.2	1.0	-0.3	1.2
Oct	0.3	1.0	0.2	1.6
AE ∆% Oct-Nov	0.6		-0.6
Sep	-0.3	1.5	-0.3	2.0
AE ∆% Sep	-3.5		-3.5
Aug	0.1	1.9	0.3	2.3
Jul	0.2	1.6	0.1	2.2
Jun	-0.1	1.6	0.1	2.2
AE ∆% Jun-Aug	0.8		2.0
May	0.1	2.1	0.2	2.4
AE ∆% May	1.2		2.4
Apr	0.5	2.4	0.4	2.5
Mar	0.3	2.0	0.1	2.3
Feb	0.3	1.9	0.1	2.5
AE ∆% Feb-Apr	4.5		2.4
Jan	-0.2	1.9	0.1	2.6
Dec 2018	-0.1	2.6	0.2	2.9
AE ∆% Dec-Jan	-1.8		1.8
Nov	-0.2	2.6	0.2	2.7
AE ∆% Nov	-2.4		2.4
Oct	0.8	3.1	0.6	2.7
Sep	0.1	2.7	0.1	2.6
AE ∆% Sep-Oct	5.5		4.3
Aug	0.0	3.0	0.0	2.6
Jul	0.1	3.4	0.2	2.8
AE ∆% Jul-Aug	0.6		1.2
Jun	0.3	3.3	0.3	2.7
May	0.4	3.1	0.3	2.4
Apr	0.1	2.7	0.2	2.4
AE ∆% Apr-Jun	3.2		3.2
Mar	0.3	2.9	0.3	2.7
Feb	0.3	2.8	0.3	2.5
Jan	0.4	2.6	0.4	2.2
AE ∆% Jan-Mar	4.1		4.1
Dec 2017	0.0	2.5	-0.1	2.2
AE ∆% Dec	0.0		-1.2
Nov	0.4	3.0	0.2	2.3
Oct	0.4	2.8	0.4	2.4
Sep	0.4	2.6	0.1	2.2
Aug	0.4	2.4	0.2	2.2
AE ∆% Aug-Nov	4.9		2.7
Jul	0.1	2.0	0.2	1.9
AE ∆% Jul	1.2		2.4
Jun	0.0	1.9	0.1	1.8
May	0.0	2.3	0.2	2.0
AE ∆% May-Jun	0.0		1.8
Apr	0.4	2.5	0.4	1.9
AE ∆% Apr	4.9		4.9
Mar	0.2	2.2	0.2	1.5
AE ∆% Mar	2.4		2.4
Feb	0.0	2.0	-0.1	1.3
AE ∆% Feb	0.0		-1.2
Jan	0.4	1.7	0.4	1.4
AE ∆% Jan	4.9		4.9
Dec 2016	0.3	1.7	0.1	1.7
Nov	0.2	1.3	0.3	1.7
AE ∆% Nov-Dec	3.0		2.4
Oct	0.3	1.1	0.1	1.5
AE ∆% Oct	3.7		1.2
Sep	0.3	0.6	0.2	1.2
AE ∆% Sep	3.7		2.4
Aug	-0.2	0.0	0.0	1.0
AE ∆% Aug	-2.4		0.0
July	-0.1	0.0	-0.1	0.9
AE ∆% Jul	-1.2		-1.2
Jun	0.5	0.2	0.4	1.2
May	0.2	0.0	0.0	1.2
Apr	0.2	0.2	0.2	1.1
AE ∆% Apr-Jun	3.7		2.4
Mar	0.0	-0.1	-0.1	1.1
Feb	-0.3	0.1	0.0	1.3
AE ∆% Mar-Feb	-1.8		-0.6
Jan	0.4	0.0	0.5	0.8
AE ∆% Jan	4.9		6.2
Dec 2015	-0.1	-1.1	0.2	0.2
AE ∆% Dec	-1.2		2.4
Nov	0.1	-1.3	0.1	0.3
AE ∆% Nov	1.2		1.2
Oct	-0.3	-1.4	-0.2	0.2
Sep	-0.4	-1.1	-0.1	0.7
AE ∆% Sep-Oct	-4.1		-1.8
Aug	-0.2	-1.0	0.0	0.6
AE ∆% Aug	-2.4		0.0
Jul	0.2	-0.7	0.2	0.8
Jun	0.3	-0.5	0.3	1.1
May	0.4	-0.8	0.1	0.7
AE ∆% May-Jul	3.7		2.4
Apr	-0.2	-1.1	0.0	1.0
AE ∆% Apr	-2.4		0.0
Mar	0.2	-0.9	0.1	0.8
AE ∆% Mar	2.4		1.2
Feb	-0.5	-0.5	-0.4	1.0
Jan	-0.6	0.0	0.0	1.7
AE ∆% Jan-Feb	-6.4		-2.4
Dec 2014	-0.3	0.9	0.2	2.0
Nov	-0.2	1.3	0.0	1.7
AE ∆% Nov-Dec	-3.0		1.2
Oct	0.2	1.5	0.4	1.9
AE ∆% Oct	2.4		4.9
Sep	-0.2	1.6	-0.1	1.6
Aug	0.0	1.9	0.0	1.9
AE ∆% Aug-Sep	-1.2		-0.6
Jul	0.4	1.9	0.5	1.9
Jun	-0.1	1.8	0.0	1.6
May	0.2	2.1	0.3	2.1
Apr	0.1	1.8	0.0	1.5
Mar	0.4	1.6	0.3	1.6
AE ∆% Mar-Jul	2.4		2.7
Feb	0.2	1.2	0.2	1.6
Jan	0.3	1.3	0.2	1.4
Dec 2013	0.1	1.2	0.0	1.2
AE ∆% Dec-Feb	2.4		1.6
Nov	0.2	1.1	0.2	1.4
Oct	0.2	1.3	0.2	1.7
Sep	0.0	1.1	0.1	1.6
AE ∆% Sep-Nov	1.6		2.0
Aug	0.1	1.7	0.0	1.8
Jul	0.2	2.0	0.3	1.7
Jun	0.4	1.7	0.4	1.3
May	-0.1	0.9	-0.3	0.9
AE ∆% May-Aug	1.8		1.6
Apr	-0.2	0.9	0.2	1.3
Mar	0.0	1.3	0.2	1.5
AE ∆% Mar-Apr	-1.2		2.4
Feb	0.2	1.6	0.0	1.4
Jan	0.3	1.6	0.1	1.7
AE ∆% Jan-Feb	3.0		0.6
Dec 2012	0.0	1.9	0.1	2.0
Nov	0.1	1.7	0.5	1.8
Oct	0.1	1.9	0.1	1.6
AE ∆% Oct-Dec	0.8		2.8
Sep	0.7	1.5	0.3	1.4
Aug	0.3	1.2	-0.1	1.2
AE ∆% Aug-Sep	6.2		1.2
Jul	-0.1	1.0	-0.1	1.7
Jun	-0.3	1.3	-0.1	1.9
AE ∆% Jun-Jul	-2.4		-1.2
May	-0.1	1.6	0.2	2.2
Apr	0.3	2.0	0.3	2.1
AE ∆% Apr-May	1.2		3.0
Mar	0.2	2.4	0.2	2.3
Feb	0.3	2.8	0.3	2.6
Jan	0.4	3.1	0.4	2.5
AE ∆% Jan-Mar	3.7		3.7
Dec 2011	-0.1	3.2	0.0	2.6
Nov	0.3	3.7	0.2	2.7
Oct	-0.4	3.7	-0.3	2.7
AE ∆% Oct-Dec	-0.8		-0.4
Sep	0.4	4.5	0.2	2.9
Aug	0.2	4.4	0.4	3.0
Jul	0.2	4.5	0.2	2.7
AE ∆% Jul-Sep	3.2		3.2
Jun	0.1	4.3	0.2	2.6
May	0.3	4.2	0.2	2.3
AE ∆% May-Jun	2.4		2.4
Apr	0.5	4.2	0.3	2.5
Mar	0.7	4.0	0.5	NA
Feb	0.6	3.3	0.3	NA
Jan	0.6	2.4	0.4	NA
AE ∆% Jan-Apr	7.4		4.6
Dec 2010	0.3	2.8	0.1	NA
Nov	0.3	2.6	0.1	NA
Oct	0.4	NA	0.1	NA
Sep	0.3	NA	0.2	NA
Aug	0.2	NA	0.0	NA
Jul	0.2	NA	0.2	NA
Jun	-0.2	NA	-0.1	NA
May	0.2	NA	0.3	NA
Apr	0.3	NA	NA	NA
Mar	0.1	NA	NA	NA
Feb	-0.2	NA	NA	NA
Jan	0.9	NA	NA	NA
Dec 2009	0.1

Note: Core: excluding food and energy; AE: annual equivalent

Source: US Bureau of Labor Statistics https://www.bls.gov/ppi/data.htm

Chart I-24B provides the FD PPI NSA from 2009 to 2021. There is persistent inflation with periodic declines in inflation waves similar to those worldwide. Prices increase sharply in 2021.

Chart I-24B, US, Final Demand Producer Price Index, NSA, 2009-2021

Source: US Bureau of Labor Statistics

Twelve-month percentage changes of the FD PPI from 2010 to 2021 are in Chart I-25B. There are fluctuations in the rates with evident trend of decline to more subdued inflation. Reallocations of investment portfolios of risk financial assets from commodities to stocks explain much lower FD PPI inflation and higher FD PPI inflation in the current reversal.

Chart I-25B, US, Final Demand Producer Price Index, 12-Month Percentage Change NSA, 2010-2021

Source: US Bureau of Labor Statistics

The core FD PPI NSA is in Chart I-26B. The behavior is similar to the headline index but with less fluctuation.

Chart I-26B, US, Final Demand Producer Price Index Excluding Food and Energy, NSA, 2009-2021

Source: US Bureau of Labor Statistics

Percentage changes in 12 months of the core FD PPI are in Chart I-27B. There are fluctuations in 12-month percentage changes but with evident declining trend to more moderate inflation followed by sharp increase in inflation.

Chart I-27B, US, Final Demand Producer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2010-2021

Source: US Bureau of Labor Statistics

The energy FD PPI NSA is in Chart I-28B. The index increased during the reposition of carry trades after the discovery of lack of toxic assets in banks that caused flight away from risk financial assets into government obligations of the US (Cochrane and Zingales 2009). Alternating risk aversion and appetite with reallocations among classes of risk financial assets explain the behavior of the index after late 2010.

Chart I-28B, US, Final Demand Energy Producer Price Index, NSA, 2009-2021

Source: US Bureau of Labor Statistics

Twelve-month percentage changes of the FD energy PPI are in Chart I-29B. Rates moderated from late 2010 to the present. There are multiple negative rates. Investors create and reverse carry trades from zero interest rates to derivatives of commodities in accordance with relative risk evaluations of classes of risk financial assets.

Chart I-29B, US, Final Demand Energy Producer Price Index, 12-Month Percentage Change, NSA, 2010-2021

Source: US Bureau of Labor Statistics

Table I-7 provides 12-month percentage changes of the CPI all items, CPI core and CPI housing from 2001 to 2021. There is no evidence in these data supporting symmetric inflation targets that would only induce greater instability in inflation, interest rates and financial markets. Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval (1.99, 2.0). Symmetric targets appear to have been abandoned in a favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output.

Table I-7, CPI All Items, CPI Core and CPI Housing, 12-Month Percentage Change, NSA 2001-2021

	CPI All Items	CPI Core ex Food and Energy	CPI Housing
Year	Oct	Oct	Oct
2001	2.1	2.6	2.9
2002	2.0	2.2	2.7
2003	2.0	1.3	2.4
2004	3.2	2.0	2.9
2005	4.3	2.1	3.9
2006	1.3	2.7	3.0
2007	3.5	2.2	3.1
2008	3.7	2.2	3.2
2009	-0.2	1.7	-0.4
2010	1.2	0.6	-0.2
2011	3.5	2.1	1.9
2012	2.2	2.0	1.6
2013	1.0	1.7	2.1
2014	1.7	1.8	2.7
2015	0.2	1.9	2.1
2016	1.6	2.1	2.9
2017	2.0	1.8	2.8
2018	2.5	2.1	2.8
2019	1.8	2.3	2.9
2020	1.2	1.6	1.9
2021	6.2	4.6	4.5

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi

IE Theory and Reality of Economic History, Cyclical Slow Growth Not Secular Stagnation and Monetary Policy Based on Fear of Deflation. Fear of deflation as had occurred during the Great Depression and in Japan was used as an argument for the first round of unconventional monetary policy with 1 percent interest rates from Jun 2003 to Jun 2004 and quantitative easing in the form of withdrawal of supply of 30-year securities by suspension of the auction of 30-year Treasury bonds with the intention of reducing mortgage rates (for fear of deflation see Pelaez and Pelaez, International Financial Architecture (2005), 18-28, and Pelaez and Pelaez, The Global Recession Risk (2007), 83-95). The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html

If the forecast of the central bank is of recession and low inflation with controlled inflationary expectations, monetary policy should consist of lowering the short-term policy rate of the central bank, which in the US is the fed funds rate. The intended effect is to lower the real rate of interest (Svensson 2003LT, 146-7). The real rate of interest, r, is defined as the nominal rate, i, adjusted by expectations of inflation, π*, with all variables defined as proportions: (1+r) = (1+i)/(1+π*) (Fisher 1930). If i, the fed funds rate, is lowered by the Fed, the numerator of the right-hand side is lower such that if inflationary expectations, π*, remain unchanged, the left-hand (1+r) decreases, that is, the real rate of interest, r, declines. Expectations of lowering short-term real rates of interest by policy of the Federal Open Market Committee (FOMC) fixing a lower fed funds rate would lower long-term real rates of interest, inducing with a lag investment and consumption, or aggregate demand, that can lift the economy out of recession. Inflation also increases with a lag by higher aggregate demand and inflation expectations (Fisher 1933). This reasoning explains why the FOMC lowered the fed funds rate in Dec 2008 to 0 to 0.25 percent and left it unchanged.

The fear of the Fed is expected deflation or negative π*. In that case, (1+ π*) < 1, and (1+r) would increase because the right-hand side of the equation would be divided by a fraction. A simple numerical example explains the effect of deflation on the real rate of interest. Suppose that the nominal rate of interest or fed funds rate, i, is 0.25 percent, or in proportion 0.25/100 = 0.0025, such that (1+i) = 1.0025. Assume now that economic agents believe that inflation will remain at 1 percent for a long period, which means that π* = 1 percent, or in proportion 1/100 =0.01. The real rate of interest, using the equation, is (1+0.0025)/(1+0.01) = (1+r) = 0.99257, such that r = 0.99257 - 1 = -0.00743, which is a proportion equivalent to –(0.00743)100 = -0.743 percent. That is, Fed policy has created a negative real rate of interest of 0.743 percent with the objective of inducing aggregate demand by higher investment and consumption. This is true if expected inflation, π*, remains at 1 percent. Suppose now that expectations of deflation become generalized such that π* becomes -1 percent, that is, the public believes prices will fall at the rate of 1 percent in the foreseeable future. Then the real rate of interest becomes (1+0.0025) divided by (1-0.01) equal to (1.0025)/(0.99) = (1+r) = 1.01263, or r = (1.01263-1) = 0.01263, which results in positive real rate of interest of (0.01263)100 = 1.263 percent.

Irving Fisher also identified the impact of deflation on debts as an important cause of deepening contraction of income and employment during the Great Depression illustrated by an actual example (Fisher 1933, 346):

“By March, 1933, liquidation had reduced the debts about 20 percent, but had increased the dollar about 75 percent, so that the real debt, that is the debt measured in terms of commodities, was increased about 40 percent [100%-20%)X(100%+75%) =140%]. Unless some counteracting cause comes along to prevent the fall in the price level, such a depression as that of 1929-1933 (namely when the more the debtors pay the more they owe) tends to continue, going deeper, in a vicious spiral, for many years. There is then no tendency of the boat to stop tipping until it has capsized”

The nominal rate of interest must always be nonnegative, that is, i ≥ 0 (Hicks 1937, 154-5):

“If the costs of holding money can be neglected, it will always be profitable to hold money rather than lend it out, if the rate of interest is not greater than zero. Consequently the rate of interest must always be positive. In an extreme case, the shortest short-term rate may perhaps be nearly zero. But if so, the long-term rate must lie above it, for the long rate has to allow for the risk that the short rate may rise during the currency of the loan, and it should be observed that the short rate can only rise, it cannot fall”

The interpretation by Hicks of the General Theory of Keynes is the special case in which at interest rates close to zero liquidity preference is infinitely or perfectly elastic, that is, the public holds infinitely large cash balances at that near zero interest rate because there is no opportunity cost of foregone interest. Increases in the money supply by the central bank would not decrease interest rates below their near zero level, which is called the liquidity trap. The only alternative public policy would consist of fiscal policy that would act similarly to an increase in investment, increasing employment without raising the interest rate. There are negative nominal interest rates fixed by central banks in Europe and Japan.

An influential view on the policy required to steer the economy away from the liquidity trap is provided by Paul Krugman (1998). Suppose the central bank faces an increase in inflation. An important ingredient of the control of inflation is the central bank communicating to the public that it will maintain a sustained effort by all available policy measures and required doses until inflation is subdued and price stability is attained. If the public believes that the central bank will control inflation only until it declines to a more benign level but not sufficiently low level, current expectations will develop that inflation will be higher once the central bank abandons harsh measures. During deflation and recession the central bank has to convince the public that it will maintain zero interest rates and other required measures until the rate of inflation returns convincingly to a level consistent with expansion of the economy and stable prices. Krugman (1998, 161) summarizes the argument as:

“The ineffectuality of monetary policy in a liquidity trap is really the result of a looking-glass version of the standard credibility problem: monetary policy does not work because the public expects that whatever the central bank may do now, given the chance, it will revert to type and stabilize prices near their current level. If the central bank can credibly promise to be irresponsible—that is, convince the market that it will in fact allow prices to rise sufficiently—it can bootstrap the economy out of the trap”

This view is consistent with results of research by Christina Romer that “the rapid rates of growth of real output in the mid- and late 1930s were largely due to conventional aggregate demand stimulus, primarily in the form of monetary expansion. My calculations suggest that in the absence of these stimuli the economy would have remained depressed far longer and far more deeply than it actually did” (Romer 1992, 757-8, cited in Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 210-2). The average growth rate of the money supply in 1933-1937 was 10 percent per year and increased in the early 1940s. Romer calculates that GDP would have been much lower without this monetary expansion. The growth of “the money supply was primarily due to a gold inflow, which was in turn due to the devaluation in 1933 and to capital flight from Europe because of political instability after 1934” (Romer 1992, 759). Gold inflow coincided with the decline in real interest rates in 1933 that remained negative through the latter part of the 1930s, suggesting that they could have caused increases in spending that was sensitive to declines in interest rates. Bernanke finds dollar devaluation against gold to have been important in preventing further deflation in the 1930s (Bernanke 2002):

“There have been times when exchange rate policy has been an effective weapon against deflation. A striking example from US history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the US deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market”

Fed policy is seeking what Irving Fisher proposed “that great depressions are curable and preventable through reflation and stabilization” (Fisher 1933, 350).

The President of the Federal Reserve Bank of Chicago argues that (Charles Evans 2010):

“I believe the US economy is best described as being in a bona fide liquidity trap. Highly plausible projections are 1 percent for core Personal Consumption Expenditures (PCE) inflation at the end of 2012 and 8 percent for the unemployment rate. For me, the Fed’s dual mandate misses are too large to shrug off, and there is currently no policy conflict between improving employment and inflation outcomes”

There are two types of monetary policies that could be used in this situation. First, the Fed could announce a price-level target to be attained within a reasonable time frame (Evans 2010):

“For example, if the slope of the price path is 2 percent and inflation has been underunning the path for some time, monetary policy would strive to catch up to the path. Inflation would be higher than 2 percent for a time until the path was reattained”

Optimum monetary policy with interest rates near zero could consist of “bringing the price level back up to a level even higher than would have prevailed had the disturbance never occurred” (Gauti Eggertsson and Michael Woodford 2003, 207). Bernanke (2003JPY) explains as follows:

“Failure by the central bank to meet its target in a given period leads to expectations of (and public demands for) increased effort in subsequent periods—greater quantities of assets purchased on the open market for example. So even if the central bank is reluctant to provide a time frame for meetings its objective, the structure of the price-level objective provides a means for the bank to commit to increasing its anti-deflationary efforts when its earlier efforts prove unsuccessful. As Eggertsson and Woodford show, the expectations that an increasing price level gap will give rise to intensified effort by the central bank should lead the public to believe that ultimately inflation will replace deflation, a belief that supports the central bank’s own objectives by lowering the current real rate of interest”

Second, the Fed could use its balance sheet to increase purchases of long-term securities together with credible commitment to maintain the policy until the dual mandates of maximum employment and price stability are attained. Policy continues with reinvestment of principal in securities.

In the restatement of the liquidity trap and large-scale policies of monetary/fiscal stimulus, Krugman (1998, 162) finds:

“In the traditional open economy IS-LM model developed by Robert Mundell [1963] and Marcus Fleming [1962], and also in large-scale econometric models, monetary expansion unambiguously leads to currency depreciation. But there are two offsetting effects on the current account balance. On one side, the currency depreciation tends to increase net exports; on the other side, the expansion of the domestic economy tends to increase imports. For what it is worth, policy experiments on such models seem to suggest that these effects very nearly cancel each other out.

Krugman (1998) uses a different dynamic model with expectations that leads to similar conclusions.

The central bank could also be pursuing competitive devaluation of the national currency in the belief that it could increase inflation to a higher level and promote domestic growth and employment at the expense of growth and unemployment in the rest of the world. An essay by Chairman Bernanke in 1999 on Japanese monetary policy received attention in the press, stating that (Bernanke 2000, 165):

“Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and experiment—in short, to do whatever it took to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and to do what needed to be done”

Quantitative easing has never been proposed by Chairman Bernanke or other economists as certain science without adverse effects. What has not been mentioned in the press is another suggestion to the Bank of Japan (BOJ) by Chairman Bernanke in the same essay that is very relevant to current events and the contentious issue of ongoing devaluation wars (Bernanke 2000, 161):

“Because the BOJ has a legal mandate to pursue price stability, it certainly could make a good argument that, with interest rates at zero, depreciation of the yen is the best available tool for achieving its mandated objective. The economic validity of the beggar-thy-neighbor thesis is doubtful, as depreciation creates trade—by raising home country income—as well as diverting it. Perhaps not all those who cite the beggar-thy-neighbor thesis are aware that it had its origins in the Great Depression, when it was used as an argument against the very devaluations that ultimately proved crucial to world economic recovery. A yen trading at 100 to the dollar is in no one’s interest”

Chairman Bernanke is referring to the argument by Joan Robinson based on the experience of the Great Depression that: “in times of general unemployment a game of beggar-my-neighbour is played between the nations, each one endeavouring to throw a larger share of the burden upon the others” (Robinson 1947, 156). Devaluation is one of the tools used in these policies (Robinson 1947, 157). Banking crises dominated the experience of the United States, but countries that recovered were those devaluing early such that competitive devaluations rescued many countries from a recession as strong as that in the US (see references to Ehsan Choudhri, Levis Kochin and Barry Eichengreen in Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 205-9; for the case of Brazil that devalued early in the Great Depression recovering with an increasing trade balance see Pelaez, 1968, 1968b, 1972; Brazil devalued and abandoned the gold standard during crises in the historical period as shown by Pelaez 1976, Pelaez and Suzigan 1981). Beggar-my-neighbor policies did work for individual countries but the criticism of Joan Robinson was that it was not optimal for the world as a whole.

Chairman Bernanke (2013Mar 25) reinterprets devaluation and recovery from the Great Depression:

“The uncoordinated abandonment of the gold standard in the early 1930s gave rise to the idea of "beggar-thy-neighbor" policies. According to this analysis, as put forth by important contemporary economists like Joan Robinson, exchange rate depreciations helped the economy whose currency had weakened by making the country more competitive internationally. Indeed, the decline in the value of the pound after 1931 was associated with a relatively early recovery from the Depression by the United Kingdom, in part because of some rebound in exports. However, according to this view, the gains to the depreciating country were equaled or exceeded by the losses to its trading partners, which became less internationally competitive--hence, ‘beggar thy neighbor.’ Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression. However, modern research on the Depression, beginning with the seminal 1985 paper by Barry Eichengreen and Jeffrey Sachs, has changed our view of the effects of the abandonment of the gold standard. Although it is true that leaving the gold standard and the resulting currency depreciation conferred a temporary competitive advantage in some cases, modern research shows that the primary benefit of leaving gold was that it freed countries to use appropriately expansionary monetary policies. By 1935 or 1936, when essentially all major countries had left the gold standard and exchange rates were market-determined, the net trade effects of the changes in currency values were certainly small. Yet the global economy as a whole was much stronger than it had been in 1931. The reason was that, in shedding the strait jacket of the gold standard, each country became free to use monetary policy in a way that was more commensurate with achieving full employment at home.”

Nurkse (1944) raised concern on the contraction of trade by competitive devaluations during the 1930s. Haberler (1937) dwelled on the issue of flexible exchange rates. Bordo and James (2001) provide perceptive exegesis of the views of Haberler (1937) and Nurkse (1944) together with the evolution of thought by Haberler. Policy coordination among sovereigns may be quite difficult in practice even if there were sufficient knowledge and sound forecasts. Friedman (1953) provided strong case in favor of a system of flexible exchange rates.

Eichengreen and Sachs (1985) argue theoretically with measurements using a two-sector model that it is possible for series of devaluations to improve the welfare of all countries. There were adverse effects of depreciation on other countries but depreciation by many countries could be beneficial for all. The important counterfactual is if depreciations by many countries would have promoted faster recovery from the Great Depression. Depreciation in the model of Eichengreen and Sachs (1985) affected domestic and foreign economies through real wages, profitability, international competitiveness and world interest rates. Depreciation causes increase in the money supply that lowers world interest rates, promoting growth of world output. Lower world interest rates could compensate contraction of output from the shift of demand away from home goods originating in neighbor’s exchange depreciation. Eichengreen and Sachs (1985, 946) conclude:

“This much, however, is clear. We do not present a blanket endorsement of the competitive devaluations of the 1930s. Though it is indisputable that currency depreciation conferred macroeconomic benefits on the initiating country, because of accompanying policies the depreciations of the 1930s had beggar-thy-neighbor effects. Though it is likely that currency depreciation (had it been even more widely adopted) would have worked to the benefit of the world as a whole, the sporadic and uncoordinated approach taken to exchange-rate policy in the 1930s tended, other things being equal, to reduce the magnitude of the benefits.”

There could major difference in the current world economy. The initiating impulse for depreciation originates in zero interest rates on the fed funds rate. The dollar is the world’s reserve currency. Risk aversion intermittently channels capital flight to the safe haven of the dollar and US Treasury securities. In the absence of risk aversion, zero interest rates induce carry trades of short positions in dollars and US debt (borrowing) together with long leveraged exposures in risk financial assets such as stocks, emerging stocks, commodities and high-yield bonds. Without risk aversion, the dollar depreciates against every currency in the world. The dollar depreciated against the euro by 39.3 percent from USD 1.1423/EUR con Jun 26, 2003 to USD 1.5914/EUR on Jun 14, 2008 during unconventional monetary policy before the global recession (Table VI-1). Unconventional monetary policy causes devaluation of the dollar relative to other currencies, which can increases net exports of the US that increase aggregate economic activity (Yellen 2011AS). The country issuing the world’s reserve currency appropriates the advantage from initiating devaluation that in policy intends to generate net exports that increase domestic output.

The Swiss franc rate relative to the euro (CHF/EUR) appreciated 18.7 percent on Jan 15, 2015. The Swiss franc rate relative to the dollar (CHF/USD) appreciated 17.7 percent. Central banks are taking measures in anticipation of the quantitative easing by the European Central Bank. On Jan 22, 2015, the European Central Bank (ECB) decided to implement an “expanded asset purchase program” with combined asset purchases of €60 billion per month “until at least Sep 2016 (https://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html). The DAX index of German equities increased 1.3 percent on Jan 22, 2015 and 2.1 percent on Jan 23, 2015. The euro depreciated from EUR 1.1611/USD (EUR 0.8613/USD) on Wed Jan 21, 2015, to EUR 1.1206/USD (EUR 0.8924/USD) on Fri Jan 23, 2015, or 3.6 percent. Yellen (2011AS, 6) admits that Fed monetary policy results in dollar devaluation with the objective of increasing net exports, which was the policy that Joan Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment. Risk aversion erodes devaluation of the dollar.

Pelaez and Pelaez (Regulation of Banks and Finance (2009b), 208-209) summarize the experience of Brazil as follows:

“During 1927–9, Brazil accumulated ￡30 million of foreign exchange of which ￡20 million were deposited at its stabilization fund (Pelaez 1968, 43–4). After the decline in coffee prices and the first impact of the Great Depression in Brazil a hot money movement wiped out foreign exchange reserves. In addition, capital inflows stopped entirely. The deterioration of the terms of trade further complicated matters, as the value of exports in foreign currency declined abruptly. Because of this exchange crisis, the service of the foreign debt of Brazil became impossible. In August 1931, the federal government was forced to cancel the payment of principal on certain foreign loans. The balance of trade in 1931 was expected to yield ￡20 million whereas the service of the foreign debt alone amounted to ￡22.6 million. Part of the solution given to these problems was typical of the 1930s. In September 1931, the government of Brazil required that all foreign transactions were to be conducted through the Bank of Brazil. This monopoly of foreign exchange was exercised by the Bank of Brazil for the following three years. Export permits were granted only after the exchange derived from sales abroad was officially sold to the Bank, which in turn allocated it in accordance with the needs of the economy. An active black market in foreign exchange developed. Brazil was in the first group of countries that abandoned early the gold standard, in 1931, and suffered comparatively less from the Great Depression. The Brazilian federal government, advised by the BOE, increased taxes and reduced expenditures in 1931 to compensate a decline in custom receipts (Pelaez 1968, 40). Expenditures caused by a revolution in 1932 in the state of Sao Paulo and a drought in the northeast explain the deficit. During 1932–6, the federal government engaged in strong efforts to stabilize the budget. Apart from the deliberate efforts to balance the budget during the 1930s, the recovery in economic activity itself may have induced a large part of the reduction of the deficit (Ibid, 41). Brazil’s experience is similar to that of the United States in that fiscal policy did not promote recovery from the Great Depression.”

Is depreciation of the dollar the best available tool currently for achieving the dual mandate of higher inflation and lower unemployment? Bernanke (2002) finds dollar devaluation against gold to have been important in preventing further deflation in the 1930s (http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm):

“Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.¹⁷ The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.”

Should the US devalue following Roosevelt? Alternatively, has monetary policy intended devaluation? Fed policy is seeking, deliberately or as a side effect, what Irving Fisher proposed “that great depressions are curable and preventable through reflation and stabilization” (Fisher, 1933, 350). The Fed has created not only high volatility of assets but also what many countries are regarding as a competitive devaluation similar to those criticized by Nurkse (1944). Yellen (2011AS, 6) admits that Fed monetary policy results in dollar devaluation with the objective of increasing net exports, which was the policy that Joan Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment.

Unconventional monetary policy of zero interest rates and large-scale purchases of long-term securities for the balance sheet of the central bank is proposed to prevent deflation. The data of CPI inflation of all goods and CPI inflation excluding food and energy for the past six decades does not show even one negative change, as shown in Table CPIEX.

Table CPIEX, Annual Percentage Changes of the CPI All Items Excluding Food and Energy

Year	Annual ∆%
1958	2.4
1959	2.0
1960	1.3
1961	1.3
1962	1.3
1963	1.3
1964	1.6
1965	1.2
1966	2.4
1967	3.6
1968	4.6
1969	5.8
1970	6.3
1971	4.7
1972	3.0
1973	3.6
1974	8.3
1975	9.1
1976	6.5
1977	6.3
1978	7.4
1979	9.8
1980	12.4
1981	10.4
1982	7.4
1983	4.0
1984	5.0
1985	4.3
1986	4.0
1987	4.1
1988	4.4
1989	4.5
1990	5.0
1991	4.9
1992	3.7
1993	3.3
1994	2.8
1995	3.0
1996	2.7
1997	2.4
1998	2.3
1999	2.1
2000	2.4
2001	2.6
2002	2.4
2003	1.4
2004	1.8
2005	2.2
2006	2.5
2007	2.3
2008	2.3
2009	1.7
2010	1.0
2011	1.7
2012	2.1
2013	1.8
2014	1.7
2015	1.8
2016	2.2
2017	1.8
2018	2.1
2019	2.2
2020	1.7

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data

Table PPIEX, Annual Percentage Changes of the PPI Finished Goods Excluding Food and Energy

Year	Annual
1974	11.4
1975	11.4
1976	5.7
1977	6.0
1978	7.5
1979	8.9
1980	11.2
1981	8.6
1982	5.7
1983	3.0
1984	2.4
1985	2.5
1986	2.3
1987	2.4
1988	3.3
1989	4.4
1990	3.7
1991	3.6
1992	2.4
1993	1.2
1994	1.0
1995	2.1
1996	1.4
1997	0.3
1998	0.9
1999	1.7
2000	1.3
2001	1.4
2002	0.1
2003	0.2
2004	1.5
2005	2.4
2006	1.5
2007	1.9
2008	3.4
2009	2.6
2010	1.2
2011	2.4
2012	2.6
2013	1.5
2014	1.9
2015	2.0
2016	1.6
2017	1.8
2018	2.3
2019	2.2
2020	1.2

Source: US Bureau of Labor Statistics

Chart I-6, US, Producer Price Index, Finished Goods, NSA, 1947-2021

Source: US Bureau of Labor Statistics

Chart I-7 provides 12-month percentage changes of the producer price index from 1948 to 2021. The distinguishing even in Chart I-7 is the Great Inflation of the 1970s. The shape of the two-hump Bactrian camel of the 1970’s resembles the double hump from 2007 to 2021.

Chart I-7, US, Producer Price Index, Finished Goods, 12-Month Percentage Change, NSA, 1948-2021

Source: US Bureau of Labor Statistics

Table I-1A, US, Annual PPI Inflation ∆% 1948-2020

Year	Annual
1948	8.0
1949	-2.8
1950	1.8
1951	9.2
1952	-0.6
1953	-1.0
1954	0.3
1955	0.3
1956	2.6
1957	3.8
1958	2.2
1959	-0.3
1960	0.9
1961	0.0
1962	0.3
1963	-0.3
1964	0.3
1965	1.8
1966	3.2
1967	1.1
1968	2.8
1969	3.8
1970	3.4
1971	3.1
1972	3.2
1973	9.1
1974	15.4
1975	10.6
1976	4.5
1977	6.4
1978	7.9
1979	11.2
1980	13.4
1981	9.2
1982	4.1
1983	1.6
1984	2.1
1985	1.0
1986	-1.4
1987	2.1
1988	2.5
1989	5.2
1990	4.9
1991	2.1
1992	1.2
1993	1.2
1994	0.6
1995	1.9
1996	2.7
1997	0.4
1998	-0.8
1999	1.8
2000	3.8
2001	2.0
2002	-1.3
2003	3.2
2004	3.6
2005	4.8
2006	3.0
2007	3.9
2008	6.3
2009	-2.6
2010	4.2
2011	6.1
2012	1.9
2013	1.2
2014	1.9
2015	-3.2
2016	-1.0
2017	3.2
2018	3.1
2019	0.8
2020	-1.4

Source: US Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

Chart I-12, US, Consumer Price Index, NSA, 1913-2021

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-13, US, Consumer Price Index, All Items, 12- Month Percentage Change 1914-2021

Source: US Bureau of Labor Statistics

Table I-2 provides annual percentage changes of United States consumer price inflation from 1914 to 2020. There have been only cases of annual declines of the CPI after wars:

World War I minus 10.5 percent in 1921 and minus 6.1 percent in 1922 following cumulative increases of 83.5 percent in four years from 1917 to 1920 at the average of 16.4 percent per year
World War II: minus 1.2 percent in 1949 following cumulative 33.9 percent in three years from 1946 to 1948 at average 10.2 percent per year
Minus 0.4 percent in 1955 two years after the end of the Korean War
Minus 0.4 percent in 2009.
The decline of 0.4 percent in 2009 followed increase of 3.8 percent in 2008 and is explained by the reversal of speculative carry trades into commodity futures that were created in 2008 as monetary policy rates were driven to zero. The reversal occurred after misleading statement on toxic assets in banks in the proposal for TARP (Cochrane and Zingales 2009).

Table I-2, US, Annual CPI Inflation ∆% 1914-2020

Year	Annual ∆%
1914	1.0
1915	1.0
1916	7.9
1917	17.4
1918	18.0
1919	14.6
1920	15.6
1921	-10.5
1922	-6.1
1923	1.8
1924	0.0
1925	2.3
1926	1.1
1927	-1.7
1928	-1.7
1929	0.0
1930	-2.3
1931	-9.0
1932	-9.9
1933	-5.1
1934	3.1
1935	2.2
1936	1.5
1937	3.6
1938	-2.1
1939	-1.4
1940	0.7
1941	5.0
1942	10.9
1943	6.1
1944	1.7
1945	2.3
1946	8.3
1947	14.4
1948	8.1
1949	-1.2
1950	1.3
1951	7.9
1952	1.9
1953	0.8
1954	0.7
1955	-0.4
1956	1.5
1957	3.3
1958	2.8
1959	0.7
1960	1.7
1961	1.0
1962	1.0
1963	1.3
1964	1.3
1965	1.6
1966	2.9
1967	3.1
1968	4.2
1969	5.5
1970	5.7
1971	4.4
1972	3.2
1973	6.2
1974	11.0
1975	9.1
1976	5.8
1977	6.5
1978	7.6
1979	11.3
1980	13.5
1981	10.3
1982	6.2
1983	3.2
1984	4.3
1985	3.6
1986	1.9
1987	3.6
1988	4.1
1989	4.8
1990	5.4
1991	4.2
1992	3.0
1993	3.0
1994	2.6
1995	2.8
1996	3.0
1997	2.3
1998	1.6
1999	2.2
2000	3.4
2001	2.8
2002	1.6
2003	2.3
2004	2.7
2005	3.4
2006	3.2
2007	2.8
2008	3.8
2009	-0.4
2010	1.6
2011	3.2
2012	2.1
2013	1.5
2014	1.6
2015	0.1
2016	1.3
2017	2.1
2018	2.4
2019	1.8
2020	1.2

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Friedman (1969) finds that the optimal rule for the quantity of money is deflation at a rate that results in a zero nominal interest rate (see Ireland 2003 and Cole and Kocherlakota 1998). Atkeson and Kehoe (2004) argue that central bankers are not inclined to implement policies that could result in deflation because of the interpretation of the Great Depression as closely related to deflation. They use panel data on inflation and growth of real output for 17 countries over more than 100 years. The time-series data for each individual country are broken into five-year events with deflation measured as average negative inflation and depression as average negative growth rate of real output. Atkeson and Kehoe (2004) find that the Great Depression from 1929 to 1934 is the only case of association between deflation and depression without any evidence whatsoever of such relation in any other period. Their conclusion is (Atkeson and Kehoe 2004, 99): “Our finding thus suggests that policymakers’ fear of anticipated policy-induced deflation that would result from following, say, the Friedman rule is greatly overblown.” Their conclusion on the experience of Japan is (Atkeson and Kehoe 2004, 99):

“Since 1960, Japan’s average growth rates have basically fallen monotonically, and since 1970, its average inflation rates have too. Attributing this 40-year slowdown to monetary forces is a stretch. More reasonable, we think, is that much of the slowdown is the natural pattern for a country that was far behind the world leaders and had begun to catch up.”

In the sample of Atkeson and Kehoe (2004), there are only eight five-year periods besides the Great Depression with both inflation and depression. Deflation and depression is shown in 65 cases with 21 of depression without deflation. There is no depression in 65 of 73 five-year periods and there is no deflation in 29 episodes of depression. There is a remarkable result of no depression in 90 percent of deflation episodes. Excluding the Great Depression, there is virtually no relation of deflation and depression. Atkeson and Kehoe (2004, 102) find that the average growth rate of Japan of 1.41 percent in the 1990s is “dismal” when compared with 3.20 percent in the United States but is not “dismal” when compared with 1.61 percent for Italy and 1.84 percent for France, which are also catch-up countries in modern economic growth (see Atkeson and Kehoe 1998). The conclusion of Atkeson and Kehoe (2004), without use of controls, is that there is no association of deflation and depression in their dataset.

Benhabib and Spiegel (2009) use a dataset similar to that of Atkeson and Kehoe (2004) but allowing for nonlinearity and inflation volatility. They conclude that in cases of low and negative inflation an increase of average inflation of 1 percent is associated with an increase of 0.31 percent of average annual growth. The analysis of Benhabib and Spiegel (2009) leads to the significantly different conclusion that inflation and economic performance are strongly associated for low and negative inflation. There is no claim of causality by Atkeson and Kehoe (2004) and Benhabib and Spiegel (2009).

Delfim Netto (1959) partly reprinted in Pelaez (1973) conducted two classical nonparametric tests (Mann 1945, Wallis and Moore 1941; see Kendall and Stuart 1968) with coffee-price data in the period of free markets from 1857 to 1906 with the following conclusions (Pelaez, 1976a, 280):

“First, the null hypothesis of no trend was accepted with high confidence; secondly, the null hypothesis of no oscillation was rejected also with high confidence. Consequently, in the nineteenth century international prices of coffee fluctuated but without long-run trend. This statistical fact refutes the extreme argument of structural weakness of the coffee trade.”

In his classic work on the theory of international trade, Jacob Viner (1937, 563) analyzed the “index of total gains from trade,” or “amount of gain per unit of trade,” denoted as T:

T= (∆P^e/∆Pⁱ)∆Q

Where ∆P^e is the change in export prices, ∆Pⁱ is the change in import prices and ∆Q is the change in export volume. Dorrance (1948, 52) restates “Viner’s index of total gain from trade” as:

“What should be done is to calculate an index of the value (quantity multiplied by price) of exports and the price of imports for any country whose foreign accounts are to be analysed. Then the export value index should be divided by the import price index. The result would be an index which would reflect, for the country concerned, changes in the volume of imports obtainable from its export income (i.e. changes in its "real" export income, measured in import terms). The present writer would suggest that this index be referred to as the ‘income terms of trade’ index to differentiate it from the other indexes at present used by economists.”

What really matters for an export activity especially during modernization is the purchasing value of goods that it exports in terms of prices of imports. For a primary producing country, the purchasing power of exports in acquiring new technology from the country providing imports is the critical measurement. The barter terms of trade of Brazil improved from 1857 to 1906 because international coffee prices oscillated without trend (Delfim Netto 1959) while import prices from the United Kingdom declined at the rate of 0.5 percent per year (Imlah 1958). The accurate measurement of the opportunity afforded by the coffee exporting economy was incomparably greater when considering the purchasing power in British prices of the value of coffee exports, or Dorrance’s (1948) income terms of trade.

The conventional theory that the terms of trade of Brazil deteriorated over the long term is without reality (Pelaez 1976a, 280-281):

“Moreover, physical exports of coffee by Brazil increased at the high average rate of 3.5 per cent per year. Brazil's exchange receipts from coffee-exporting in sterling increased at the average rate of 3.5 per cent per year and receipts in domestic currency at 4.5 per cent per year. Great Britain supplied nearly all the imports of the coffee economy. In the period of the free coffee market, British export prices declined at the rate of 0.5 per cent per year. Thus, the income terms of trade of the coffee economy improved at the relatively satisfactory average rate of 4.0 per cent per year. This is only a lower bound of the rate of improvement of the terms of trade. While the quality of coffee remained relatively constant, the quality of manufactured products improved significantly during the fifty-year period considered. The trade data and the non-parametric tests refute conclusively the long-run hypothesis. The valid historical fact is that the tropical export economy of Brazil experienced an opportunity of absorbing rapidly increasing quantities of manufactures from the "workshop" countries. Therefore, the coffee trade constituted a golden opportunity for modernization in nineteenth-century Brazil.”

Imlah (1958) provides decline of British export prices at 0.5 percent in the nineteenth century and there were no lost decades, depressions or unconventional monetary policies in the highly dynamic economy of England that drove the world’s growth impulse. Inflation in the United Kingdom between 1857 and 1906 is measured by the composite price index of O’Donoghue and Goulding (2004) at minus 7.0 percent or average rate of decline of 0.2 percent per year.

Simon Kuznets (1971) analyzes modern economic growth in his Lecture in Memory of Alfred Nobel:

“The major breakthroughs in the advance of human knowledge, those that constituted dominant sources of sustained growth over long periods and spread to a substantial part of the world, may be termed epochal innovations. And the changing course of economic history can perhaps be subdivided into economic epochs, each identified by the epochal innovation with the distinctive characteristics of growth that it generated.Without considering the feasibility of identifying and dating such economic epochs, we may proceed on the working assumption that modern economic growth represents such a distinct epoch - growth dating back to the late eighteenth century and limited (except in significant partial effects) to economically developed countries. These countries, so classified because they have managed to take adequate advantage of the potential of modern technology, include most of Europe, the overseas offshoots of Western Europe, and Japan—barely one quarter of world population.”

Cameron (1961) analyzes the mechanism by which the Industrial Revolution in Great Britain spread throughout Europe and Cameron (1967) analyzes the financing by banks of the Industrial Revolution in Great Britain. O’Donoghue and Goulding (2004) provide consumer price inflation in England since 1750 and MacFarlane and Mortimer-Lee (1994) analyze inflation in England over 300 years. Lucas (2004) estimates world population and production since the year 1000 with sustained growth of per capita incomes beginning to accelerate for the first time in English-speaking countries and in particular in the Industrial Revolution in Great Britain. The conventional theory is unequal distribution of the gains from trade and technical progress between the industrialized countries and developing economies (Singer 1950, 478):

“Dismissing, then, changes in productivity as a governing factor in changing terms of trade, the following explanation presents itself: the fruits of technical progress may be distributed either to producers (in the form of rising incomes) or to consumers (in the form of lower prices). In the case of manufactured commodities produced in more developed countries, the former method, i.e., distribution to producers through higher incomes, was much more important relatively to the second method, while the second method prevailed more in the case of food and raw material production in the underdeveloped countries. Generalizing, we may say -that technical progress in manufacturing industries showed in a rise in incomes while technical progress in the production of food and raw materials in underdeveloped countries showed in a fall in prices”

Temin (1997, 79) uses a Ricardian trade model to discriminate between two views on the Industrial Revolution with an older view arguing broad-based increases in productivity and a new view concentration of productivity gains in cotton manufactures and iron:

“Productivity advances in British manufacturing should have lowered their prices relative to imports. They did. Albert Imlah [1958] correctly recognized this ‘severe deterioration’ in the net barter terms of trade as a signal of British success, not distress. It is no surprise that the price of cotton manufactures fell rapidly in response to productivity growth. But even the price of woolen manufactures, which were declining as a share of British exports, fell almost as rapidly as the price of exports as a whole. It follows, therefore, that the traditional ‘old-hat’ view of the Industrial Revolution is more accurate than the new, restricted image. Other British manufactures were not inefficient and stagnant, or at least, they were not all so backward. The spirit that motivated cotton manufactures extended also to activities as varied as hardware and haberdashery, arms, and apparel.”

Phyllis Deane (1968, 96) estimates growth of United Kingdom gross national product (GNP) at around 2 percent per year for several decades in the nineteenth century. The facts that the terms of trade of Great Britain deteriorated during the period of epochal innovation and high rates of economic growth while the income terms of trade of the coffee economy of nineteenth-century Brazil improved at the average yearly rate of 4.0 percent from 1857 to 1906 disprove the hypothesis of weakness of trade as an explanation of relatively lower income and wealth. As Temin (1997) concludes, Britain did pass on lower prices and higher quality the benefits of technical innovation. Explanation of late modernization must focus on laborious historical research on institutions and economic regimes together with economic theory, data gathering and measurement instead of grand generalizations of weakness of trade and alleged neocolonial dependence (Stein and Stein 1970, 134-5):

“Great Britain, technologically and industrially advanced, became as important to the Latin American economy as to the cotton-exporting southern United States. [After Independence in the nineteenth century] Latin America fell back upon traditional export activities, utilizing the cheapest available factor of production, the land, and the dependent labor force.”

Summerhill (2015) contributes momentous solid facts and analysis with an ideal method combining economic theory, econometrics, international comparisons, data reconstruction and exhaustive archival research. Summerhill (2015) finds that Brazil committed to service of sovereign foreign and internal debt. Contrary to conventional wisdom, Brazil generated primary fiscal surpluses during most of the Empire until 1889 (Summerhill 2015, 37-8, Figure 2.1). Econometric tests by Summerhill (2015, 19-44) show that Brazil’s sovereign debt was sustainable. Sovereign credibility in the North-Weingast (1989) sense spread to financial development that provided the capital for modernization in England and parts of Europe (see Cameron 1961, 1967). Summerhill (2015, 3, 194-6, Figure 7.1) finds that “Brazil’s annual cost of capital in London fell from a peak of 13.9 percent in 1829 to only 5.12 percent in 1889. Average rates on secured loans in the private sector in Rio, however, remained well above 12 percent through 1850.” Financial development would have financed diversification of economic activities, increasing productivity and wages and ensuring economic growth. Brazil restricted creation of limited liability enterprises (Summerhill 2015, 151-82) that prevented raising capital with issue of stocks and corporate bonds. Cameron (1961) analyzed how the industrial revolution in England spread to France and then to the rest of Europe. The Société Générale de Crédit Mobilier of Émile and Isaac Péreire provided the “mobilization of credit” for the new economic activities (Cameron 1961). Summerhill (2015, 151-9) provides facts and analysis demonstrating that regulation prevented the creation of a similar vehicle for financing modernization by Irineu Evangelista de Souza, the legendary Visconde de Mauá. Regulation also prevented the use of negotiable bearing notes of the Caisse Générale of Jacques Lafitte (Cameron 1961, 118-9). The government also restricted establishment and independent operation of banks (Summerhill 2015, 183-214). Summerhill (2015, 198-9) measures concentration in banking that provided economic rents or a social loss. The facts and analysis of Summerhill (2015) provide convincing evidence in support of the economic theory of regulation, which postulates that regulated entities capture the process of regulation to promote their self-interest. There appears to be a case that excessively centralized government can result in regulation favoring private instead of public interests with adverse effects on economic activity. The contribution of Summerhill (2015) explains why Brazil did not benefit from trade as an engine of growth—as did regions of recent settlement in the vision of nineteenth-century trade and development of Ragnar Nurkse (1959)—partly because of restrictions on financing and incorporation. Professor Rondo E. Cameron, in his memorable A Concise Economic History of the World (Cameron 1989, 307-8), finds that “from a broad spectrum of possible forms of interaction between the financial sector and other sectors of the economy that requires its services, one can isolate three type-cases: (1) that in which the financial sector plays a positive, growth-inducing role; (2) that in which the financial sector is essentially neutral or merely permissive; and (3) that in which inadequate finance restricts or hinders industrial and commercial development.” Summerhill (2015) proves exhaustively that Brazil failed to modernize earlier because of the restrictions of an inadequate institutional financial arrangement plagued by regulatory capture for self-interest.

The experience of the United Kingdom with deflation and economic growth is relevant and rich. Table IE-1 uses yearly percentage changes of the composite index of prices of the United Kingdom of O’Donoghue and Goulding (2004). There are 73 declines of inflation in the 145 years from 1751 to 1896. Prices declined in 50.3 percent of 145 years. Some price declines were quite sharp and many occurred over several years. Table IE-1 also provides yearly percentage changes of the UK composite price index of O’Donoghue and Goulding (2004) from 1929 to 1934. Deflation was much sharper in continuous years in earlier periods than during the Great Depression. The United Kingdom could not have led the world in modern economic growth if there were meaningful causality from deflation to depression.

Table IE-1, United Kingdom, Negative Percentage Changes of Composite Price Index, 1751-1896, 1929-1934, Yearly ∆%

Year	∆%	Year	∆%	Year	∆%	Year	∆%
1751	-2.7	1797	-10.0	1834	-7.8	1877	-0.7
1753	-2.7	1798	-2.2	1841	-2.3	1878	-2.2
1755	-6.0	1802	-23.0	1842	-7.6	1879	-4.4
1758	-0.3	1803	-5.9	1843	-11.3	1881	-1.1
1759	-7.9	1806	-4.4	1844	-0.1	1883	-0.5
1760	-4.5	1807	-1.9	1848	-12.1	1884	-2.7
1761	-4.5	1811	-2.9	1849	-6.3	1885	-3.0
1768	-1.1	1814	-12.7	1850	-6.4	1886	-1.6
1769	-8.2	1815	-10.7	1851	-3.0	1887	-0.5
1770	-0.4	1816	-8.4	1857	-5.6	1893	-0.7
1773	-0.3	1819	-2.5	1858	-8.4	1894	-2.0
1775	-5.6	1820	-9.3	1859	-1.8	1895	-1.0
1776	-2.2	1821	-12.0	1862	-2.6	1896	-0.3
1777	-0.4	1822	-13.5	1863	-3.6	1929	-0.9
1779	-8.5	1826	-5.5	1864	-0.9	1930	-2.8
1780	-3.4	1827	-6.5	1868	-1.7	1931	-4.3
1785	-4.0	1828	-2.9	1869	-5.0	1932	-2.6
1787	-0.6	1830	-6.1	1874	-3.3	1933	-2.1
1789	-1.3	1832	-7.4	1875	-1.9	1934	0.0
1791	-0.1	1833	-6.1	1876	-0.3

Source:

O’Donoghue, Jim and Louise Goulding, 2004. Consumer Price Inflation since 1750. UK Office for National Statistics Economic Trends 604, Mar 2004, 38-46.

There is current interest in past theories of “secular stagnation.” Alvin H. Hansen (1939, 4, 7; see Hansen 1938, 1941; for an early critique see Simons 1942) argues:

“Not until the problem of full employment of our productive resources from the long-run, secular standpoint was upon us, were we compelled to give serious consideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic (sic) and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick recoveries which die in their infancy and depressions which feed on themselves and leave a hard and seemingly immovable core of unemployment. Now the rate of population growth must necessarily play an important role in determining the character of the output; in other words, the composition of the flow of final goods. Thus a rapidly growing population will demand a much larger per capita volume of new residential building construction than will a stationary population. A stationary population with its larger proportion of old people may perhaps demand more personal services; and the composition of consumer demand will have an important influence on the quantity of capital required. The demand for housing calls for large capital outlays, while the demand for personal services can be met without making large investment expenditures. It is therefore not unlikely that a shift from a rapidly growing population to a stationary or declining one may so alter the composition of the final flow of consumption goods that the ratio of capital to output as a whole will tend to decline.”

In the analysis of Hansen (1939, 3) of secular stagnation, economic progress consists of growth of real income per person driven by growth of productivity. The “constituent elements” of economic progress are “(a) inventions, (b) the discovery and development of new territory and new resources, and (c) the growth of population” (Hansen 1939, 3). Secular stagnation originates in decline of population growth and discouragement of inventions. According to Hansen (1939, 2), US population grew by 16 million in the 1920s but grew by one half or about 8 million in the 1930s with forecasts at the time of Hansen’s writing in 1938 of growth of around 5.3 million in the 1940s. Hansen (1939, 2) characterized demography in the US as “a drastic decline in the rate of population growth. Hansen’s plea was to adapt economic policy to stagnation of population in ensuring full employment. In the analysis of Hansen (1939, 8), population caused half of the growth of US GDP per year. Growth of output per person in the US and Europe was caused by “changes in techniques and to the exploitation of new natural resources.” In this analysis, population caused 60 percent of the growth of capital formation in the US. Declining population growth would reduce growth of capital formation. Residential construction provided an important share of growth of capital formation. Hansen (1939, 12) argues that market power of imperfect competition discourages innovation with prolonged use of obsolete capital equipment. Trade unions would oppose labor-savings innovations. The combination of stagnating and aging population with reduced innovation caused secular stagnation. Hansen (1939, 12) concludes that there is role for public investments to compensate for lack of dynamism of private investment but with tough tax/debt issues.

Table SE1 provides contributions to growth of GDP in the 1930s. These data were not available until much more recently. Residential investment (RSI) contributed 1.03 percentage points to growth of GDP of 8.0 percent in 1939, which is a high percentage of the contribution of gross private domestic investment of 2.39 percentage points. Residential investment contributed 0.42 percentage points to GDP growth of 8.8 percent in 1940 with gross private domestic investment contributing 3.99 percentage points.

Table SE1, US, Contributions to Growth of GDP

	GDP ∆%	PCE PP	GDI PP	NRI PP	RSI PP	Net Trade PP	GOVT PP
1930	-8.5	-3.96	-5.18	-1.84	-1.50	-0.31	0.94
1931	-6.4	-2.37	-4.28	-3.32	-0.40	-0.22	0.48
1932	-12.9	-7.00	-5.28	-2.78	-1.02	-0.20	-0.42
1933	-1.3	-1.79	1.16	-0.44	-0.24	-0.11	-0.52
1934	10.8	5.71	2.83	1.31	0.38	0.33	1.91
1935	8.9	4.69	4.54	1.41	0.56	-0.83	0.50
1936	12.9	7.68	2.58	2.10	0.47	0.24	2.44
1937	5.1	2.72	2.57	1.42	0.17	0.45	-0.64
1938	-3.3	-1.15	-4.13	-2.13	0.01	0.88	1.09
1939	8.0	4.11	2.39	0.71	1.03	0.07	1.41
1940	8.8	3.72	3.99	1.60	0.42	0.52	0.57

GDP ∆%: Annual Growth of GDP; PCE PP: Percentage Points Contributed by Personal Consumption Expenditures (PCE); GDI PP: Percentage Points Contributed by Gross Private Domestic Investment (GDI); NRI PP: Percentage Points Contributed by Nonresidential Investment (NRI); RSI: Percentage Points Contributed by Residential Investment; Net Trade PP: Percentage Points Contributed by Net Exports less Imports of Goods and Services; GOVT PP: Percentage Points Contributed by Government Consumption and Gross Investment

Source: Bureau of Economic Analysis

http://www.bea.gov/iTable/index_nipa.cfm

Table ES2 provides percentage shares of GDP in 1929, 1939, 1940, 2006 and 2015. The share of residential investment was 3.9 percent in 1929, 3.4 percent in 1939 and 6.0 percent in 2006 at the peak of the real estate boom. The share of residential investment in GDP has not been very high historically.

Table ES2, Percentage Shares in GDP

	1929	1939	1940	2006	2015
GDP	100.00	100.00	100.00	100.00	100.00
PCE	74.0	71.9	69.2	67.1	68.4
GDI	16.4	10.9	14.2	19.3	16.8
NRI	11.1	7.3	8.3	12.8	12.8
RSI	3.9	3.4	3.5	6.0	3.4
Net Trade	0.4	0.9	1.4	-5.6	-3.0
GOVT	9.2	16.3	15.2	19.1	17.8

PCE: Personal Consumption Expenditures; GDI: Gross Domestic Investment; NRI: Nonresidential Investment; RSI: Residential Investment; Net Trade: Net Exports less Imports of Goods and Services; GOVT: Government Consumption and Gross Investment

Source: Bureau of Economic Analysis

PCE: Personal Consumption Expenditures; GDI: Gross Private Domestic Investment; NRI: Nonresidential Investment; RSI: Residential Investment; Net Trade: Net Exports less Imports of Goods and Services; GOVT: Government Consumption and Gross Investment

Source: Bureau of Economic Analysis

http://www.bea.gov/iTable/index_nipa.cfm

An interpretation of the New Deal is that fiscal stimulus must be massive in recovering growth and employment and that it should not be withdrawn prematurely to avoid a sharp second contraction as it occurred in 1937 (Christina Romer 2009). Proposals for another higher dose of stimulus explain the current weakness by insufficient fiscal expansion and warn that failure to spend more can cause another contraction as in 1937. According to a different interpretation, private hours worked declined by 25 percent by 1939 compared with the level in 1929, suggesting that the economy fell to a lower path of expansion than in 1929 (works by Harold Cole and Lee Ohanian (1999) (cited in Pelaez and Pelaez, Regulation of Banks and Finance, 215-7). Major real variables of output and employment were below trend by 1939: -26.8 percent for GNP, -25.4 percent for consumption, -51 percent for investment and -25.6 percent for hours worked. Surprisingly, total factor productivity increased by 3.1 percent and real wages by 21.8 percent (Cole and Ohanian 1999). The policies of the Roosevelt administration encouraged increasing unionization to maintain high wages with lower hours worked and high prices by lax enforcement of antitrust law to encourage cartels or collusive agreements among producers. The encouragement by the government of labor bargaining by unions and higher prices by collusion depressed output and employment throughout the 1930s until Roosevelt abandoned the policies during World War II after which the economy recovered full employment (Cole and Ohanian 1999). The fortunate ones who worked during the New Deal received higher real wages at the expense of many who never worked again. In a way, the administration behaved like the father of the unionized workers and the uncle of the collusive rich, neglecting the majority in the middle. Inflation-adjusted GDP increased by 10.8 percent in 1934, 8.9 percent in 1935, 12.9 percent in 1936 but only 5.1 percent in 1937, contracting by -3.3 percent in 1938 (US Bureau of Economic Analysis cited in Pelaez and Pelaez, Financial Regulation after the Global Recession, 151, Globalization and the State, Vol. II, 206). The competing explanation is that the economy did not decline from 1937 to 1938 because of lower government spending in 1937 but rather because of the expansion of unions promoted by the New Deal and increases in tax rates (Thomas Cooley and Lee Ohanian 2010). Government spending adjusted for inflation fell only 0.7 percent in 1936 and 1937 and could not explain the decline of GDP by 3.4 percent in 1938. In 1936, the administration imposed a tax on retained profits not distributed to shareholders according to a sliding scale of 7 percent for retaining 1 percent of total net income up to 27 percent for retaining 70 percent of total net income, increasing costs of investment that were mostly financed in that period with retained earnings (Cooley and Ohanian 2010). The tax rate on dividends jumped from 10.1 percent in 1929 to 15.9 percent in 1932 and doubled by 1936. A recent study finds that “tax rates on dividends rose dramatically during the 1930s and imply significant declines in investment and equity values and nontrivial declines in GDP and hours of work” (Ellen McGrattan 2010), explaining a significant part of the decline of 26 percent in business fixed investment in 1937-1938. The National Labor Relations Act of 1935 caused an increase in union membership from 12 percent in 1934 to 25 percent in 1938. The alternative lesson from the 1930s is that capital income taxes and higher unionization caused increases in business costs that perpetuated job losses of the recession with current risks of repeating the 1930s (Cooley and Ohanian 1999).

The current application of Hansen’s (1938, 1939, 1941) proposition argues that secular stagnation occurs because full employment equilibrium can be attained only with negative real interest rates between minus 2 and minus 3 percent. Professor Lawrence H. Summers (2013Nov8) finds that “a set of older ideas that went under the phrase secular stagnation are not profoundly important in understanding Japan’s experience in the 1990s and may not be without relevance to America’s experience today” (emphasis added). Summers (2013Nov8) argues there could be an explanation in “that the short-term real interest rate that was consistent with full employment had fallen to -2% or -3% sometime in the middle of the last decade. Then, even with artificial stimulus to demand coming from all this financial imprudence, you wouldn’t see any excess demand. And even with a relative resumption of normal credit conditions, you’d have a lot of difficulty getting back to full employment.” The US economy could be in a situation where negative real rates of interest with fed funds rates close to zero as determined by the Federal Open Market Committee (FOMC) do not move the economy to full employment or full utilization of productive resources. Summers (2013Oct8) finds need of new thinking on “how we manage an economy in which the zero nominal interest rates is a chronic and systemic inhibitor of economy activity holding our economies back to their potential.”

Former US Treasury Secretary Robert Rubin (2014Jan8) finds three major risks in prolonged unconventional monetary policy of zero interest rates and quantitative easing: (1) incentive of delaying action by political leaders; (2) “financial moral hazard” in inducing excessive exposures pursuing higher yields of risker credit classes; and (3) major risks in exiting unconventional policy. Rubin (2014Jan8) proposes reduction of deficits by structural reforms that could promote recovery by improving confidence of business attained with sound fiscal discipline.

Professor John B. Taylor (2014Jan01, 2014Jan3) provides clear thought on the lack of relevance of Hansen’s contention of secular stagnation to current economic conditions. The application of secular stagnation argues that the economy of the US has attained full-employment equilibrium since around 2000 only with negative real rates of interest of minus 2 to minus 3 percent. At low levels of inflation, the so-called full-employment equilibrium of negative interest rates of minus 2 to minus 3 percent cannot be attained and the economy stagnates. Taylor (2014Jan01) analyzes multiple contradictions with current reality in this application of the theory of secular stagnation:

Secular stagnation would predict idle capacity, in particular in residential investment when fed fund rates were fixed at 1 percent from Jun 2003 to Jun 2004. Taylor (2014Jan01) finds unemployment at 4.4 percent with house prices jumping 7 percent from 2002 to 2003 and 14 percent from 2004 to 2005 before dropping from 2006 to 2007. GDP prices doubled from 1.7 percent to 3.4 percent when interest rates were low from 2003 to 2005.
Taylor (2014Jan01, 2014Jan3) finds another contradiction in the application of secular stagnation based on low interest rates because of savings glut and lack of investment opportunities. Taylor (2009) shows that there was no savings glut. The savings rate of the US in the past decade is significantly lower than in the 1980s.
Taylor (2014Jan01, 2014Jan3) finds another contradiction in the low ratio of investment to GDP currently and reduced investment and hiring by US business firms.
Taylor (2014Jan01, 2014Jan3) argues that the financial crisis and global recession were caused by weak implementation of existing regulation and departure from rules-based policies.
Taylor (2014Jan01, 2014Jan3) argues that the recovery from the global recession was constrained by a change in the regime of regulation and fiscal/monetary policies.

In revealing research, Edward P. Lazear and James R. Spletzer (2012JHJul22) use the wealth of data in the valuable database and resources of the Bureau of Labor Statistics (https://www.bls.gov/data/) in providing clear thought on the nature of the current labor market of the United States. The critical issue of analysis and policy currently is whether unemployment is structural or cyclical. Structural unemployment could occur because of (1) industrial and demographic shifts and (2) mismatches of skills and job vacancies in industries and locations. Consider the aggregate unemployment rate, Y, expressed in terms of share s_i of a demographic group in an industry i and unemployment rate y_i of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):

Y = ∑_is_iy_i (1)

This equation can be decomposed for analysis as (Lazear and Spletzer 2012JHJul22, 6):

∆Y = ∑_i∆s_iy*_i+ ∑_i∆y_is*_i (2)

The first term in (2) captures changes in the demographic and industrial composition of the economy ∆s_i multiplied by the average rate of unemployment y*_i, or structural factors. The second term in (2) captures changes in the unemployment rate specific to a group, or ∆y_i, multiplied by the average share of the group s*_i,or cyclical factors. There are also mismatches in skills and locations relative to available job vacancies. A simple observation by Lazear and Spletzer (2012JHJul22) casts intuitive doubt on structural factors: the rate of unemployment jumped from 4.4 percent in the spring of 2007 to 10 percent in October 2009. By nature, structural factors should be permanent or occur over relative long periods. The revealing result of the exhaustive research of Lazear and Spletzer (2012JHJul22) is:

“The analysis in this paper and in others that we review do not provide any compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the pattern of persistently high unemployment rates. The evidence points to primarily cyclic factors.”

Table I-4b and Chart I-12-b provide the US labor force participation rate or percentage of the labor force in population. It is not likely that simple demographic trends caused the sharp decline during the global recession and failure to recover earlier levels. The civilian labor force participation rate dropped from the peak of 66.9 percent in Jul 2006 to 62.6 percent in Dec 2013, 62.5 percent in Dec 2014, 62.4 percent in Dec 2015 and 62.4 in Dec 2016. The civilian labor force participation rate reached 62.4 in Dec 2017, and 63.1 percent in 2019. The civilian labor force participation rate was at 62.9 percent in Nov 2018 and 62.8 percent in Dec 2018. The civilian labor force participation was 63.0 in Dec 2019. The civilian labor force participation rate was 61.3 in Dec 2020. The civilian labor force participation rate was 61.8 in Oct 2021. The civilian labor force participation rate was 63.7 percent on an annual basis in 1979 and 63.4 percent in Dec 1980 and Dec 1981, reaching even 62.9 percent in both Apr and May 1979. The civilian labor force participation rate jumped with the recovery to 64.8 percent on an annual basis in 1985 and 65.9 percent in Jul 1985. Structural factors cannot explain these sudden changes vividly shown visually in the final segment of Chart I-12b. Seniors would like delay their retiring especially because of the adversities of financial repression on their savings. Labor force statistics are capturing the disillusion of potential workers with their chances in finding a job in what Lazear and Spletzer (2012JHJul22) characterize as accentuated cyclical factors. The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (https://cmpassocregulationblog.blogspot.com/2021/10/total-nonfarm-hires-move-from-4986.html and earlier https://cmpassocregulationblog.blogspot.com/2021/09/total-nonfarm-hires-move-from-4986.html). “Secular stagnation” would be a process over many years and not from one year to another. This is merely another case of theory without reality with dubious policy proposals.

Table I-4b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2021

Year	Jun	Jul	Aug	Sep	Oct	Dec	Annual
1979	64.5	64.9	64.5	63.8	64.0	63.8	63.7
1980	64.6	65.1	64.5	63.6	63.9	63.4	63.8
1981	64.6	65.0	64.6	63.5	64.0	63.4	63.9
1982	64.8	65.3	64.9	64.0	64.1	63.8	64.0
1983	65.1	65.4	65.1	64.3	64.1	63.8	64.0
1984	65.5	65.9	65.2	64.4	64.6	64.3	64.4
1985	65.5	65.9	65.4	64.9	65.1	64.6	64.8
1986	66.3	66.6	66.1	65.3	65.5	65.0	65.3
1987	66.3	66.8	66.5	65.5	65.9	65.5	65.6
1988	66.7	67.1	66.8	65.9	66.1	65.9	65.9
1989	67.4	67.7	67.2	66.3	66.6	66.3	66.5
1990	67.4	67.7	67.1	66.4	66.5	66.1	66.5
1991	67.2	67.3	66.6	66.1	66.1	65.8	66.2
1992	67.6	67.9	67.2	66.3	66.2	66.1	66.4
1993	67.3	67.5	67.0	66.1	66.4	66.2	66.3
1994	67.2	67.5	67.2	66.5	66.8	66.5	66.6
1995	67.2	67.7	67.1	66.5	66.7	66.2	66.6
1996	67.4	67.9	67.2	66.8	67.1	66.7	66.8
1997	67.8	68.1	67.6	67.0	67.1	67.0	67.1
1998	67.7	67.9	67.3	67.0	67.1	67.0	67.1
1999	67.7	67.9	67.3	66.8	67.0	67.0	67.1
2000	67.7	67.6	67.2	66.7	66.9	67.0	67.1
2001	67.2	67.4	66.8	66.6	66.7	66.6	66.8
2002	67.1	67.2	66.8	66.6	66.6	66.2	66.6
2003	67.0	66.8	66.3	65.9	66.1	65.8	66.2
2004	66.5	66.8	66.2	65.7	66.0	65.8	66.0
2005	66.5	66.8	66.5	66.1	66.2	65.9	66.0
2006	66.7	66.9	66.5	66.1	66.4	66.3	66.2
2007	66.6	66.8	66.1	66.0	66.0	65.9	66.0
2008	66.6	66.8	66.4	65.9	66.1	65.7	66.0
2009	66.2	66.2	65.6	65.0	64.9	64.4	65.4
2010	65.1	65.3	65.0	64.6	64.4	64.1	64.7
2011	64.5	64.6	64.3	64.2	64.1	63.8	64.1
2012	64.3	64.3	63.7	63.6	63.8	63.4	63.7
2013	64.0	64.0	63.4	63.2	62.9	62.6	63.2
2014	63.4	63.5	63.0	62.8	63.0	62.5	62.9
2015	63.1	63.2	62.7	62.3	62.5	62.4	62.7
2016	63.2	63.4	62.9	62.8	62.8	62.4	62.8
2017	63.3	63.5	63.0	63.0	62.7	62.4	62.9
2018	63.4	63.5	62.7	62.7	62.9	62.8	62.9
2019	63.4	63.6	63.2	63.1	63.3	63.0	63.1
2020	61.8	62.0	61.8	61.4	61.7	61.3	61.7
2021	62.1	62.3	61.8	61.7	61.8

Source: US Bureau of Labor Statistics

https://www.bls.gov/cps/

Chart I-12b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2021

Source: Bureau of Labor Statistics

The magnitude of the stress in US labor markets is magnified by the increase in the civilian noninstitutional population of the United States from 231.958 million in Jul 2007 to 261.766 million in Sep 2021 or by 29.808 million (https://www.bls.gov/data/). The number with full-time jobs in Sep 2021 is 128.484 million, in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021), which is higher by 5.265 million relative to the peak of 123.219 million in Jul 2007. The ratio of full-time jobs of 123.219 million in Jul 2007 to civilian noninstitutional population of 231.958 million was 53.1 percent. If that ratio had remained the same, there would be 138.998 million full-time jobs with population of 261.766 million in Sep 2021 (0.531 x 261.766) or 10.514 million fewer full-time jobs relative to actual 128.484 million. There appear to be around 15 million fewer full-time jobs in the US than before the global recession while population increased around 29 million. Mediocre GDP growth is the main culprit of the fractured US labor market augmented in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021).

There is current interest in past theories of “secular stagnation.” Alvin H. Hansen (1939, 4, 7; see Hansen 1938, 1941; for an early critique see Simons 1942) argues:

“Not until the problem of full employment of our productive resources from the long-run, secular standpoint was upon us, were we compelled to give serious consideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic (sic) and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick recoveries which die in their infancy and depressions which feed on them-selves and leave a hard and seemingly immovable core of unemployment. Now the rate of population growth must necessarily play an important role in determining the character of the output; in other words, the com-position of the flow of final goods. Thus a rapidly growing population will demand a much larger per capita volume of new residential building construction than will a stationary population. A stationary population with its larger proportion of old people may perhaps demand more personal services; and the composition of consumer demand will have an important influence on the quantity of capital required. The demand for housing calls for large capital outlays, while the demand for personal services can be met without making large investment expenditures. It is therefore not unlikely that a shift from a rapidly growing population to a stationary or declining one may so alter the composition of the final flow of consumption goods that the ratio of capital to output as a whole will tend to decline.”

The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). This is merely another case of theory without reality with dubious policy proposals.

Inferior performance of the US economy and labor markets, during cyclical slow growth not secular stagnation, is the critical current issue of analysis and policy design.

Chart I-20, US, Full-time Employed, Thousands, NSA, 2001-2021

Sources: US Bureau of Labor Statistics

Chart I-20A provides the noninstitutional civilian population of the United States from 2001 to 2021. There is clear trend of increase of the population while the number of full-time jobs collapsed after 2008 with insufficient recovery as shown in the preceding Chart I-20.

Chart I-20A, US, Noninstitutional Civilian Population, Thousands, 2001-2021

Sources: US Bureau of Labor Statistics

Chart I-20B provides number of full-time jobs in the US from 1968 to 2021. There were multiple recessions followed by expansions without contraction of full-time jobs and without recovery as during the period after 2008. The problem is specific of the current cycle and not secular.

Chart I-20B, US, Full-time Employed, Thousands, NSA, 1968-2021

Sources: US Bureau of Labor Statistics

Chart I-20C provides the noninstitutional civilian population of the United States from 1968 to 2021. Population expanded at a relatively constant rate of increase with the assurance of creation of full-time jobs that has been broken since 2008.

Chart I-20C, US, Noninstitutional Civilian Population, Thousands, 1968-2021

Sources: US Bureau of Labor Statistics