Thursday, August 20, 2015

Four Measures of Inflation, and Five Interest Rates

The inflation measures are blue. The Interest rates are red.

The one causes the other? They move together?? They don't??? What do you see? I'll tell you what I see. I'm not nit-pickin it. Just a quick look.

On the way up, in the 1960s and 1970s, rising inflation snuck up on inflation expectations and closed the gap with interest rates. We didn't expect the inflation we were getting.

On the way down, in the 1980s and 1990s, falling inflation again surprised inflation expectations, and the gap with interest rates grew. We didn't expect the disinflation we were getting.

Doesn't say much about the relation between interest and inflation, does it?

Says a lot about expectations, though.

1 comment:

Jazzbumpa said...


It says expectations lag reality.

Not that reality is determined by expectations, as economists always tell us.