100-year lens on inflation
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Massive economic disruptions cause massive price volatility. That's the lesson of the past 100 years of consumer prices, according to data from the Bureau of Labor Statistics.
Why it matters: By the standards of global disruption — two world wars, the Great Depression, the oil-price shock of the 1970s — today's 6.8% inflation rate, the worst since 1982, seems positively tame.
- But that doesn't help consumers who suddenly find higher prices for almost everything.
Between the lines: Americans' average hourly earnings are at an all-time high of $31 per hour, up 4.8% from a year ago. When inflation is running at a 6.8% pace, however, that works out to a 2% reduction in real wages.
What happened: The pandemic upended the global economy. The whole world came to a physical and metaphorical halt. Supply chains were severed. Central banks reacted with ultra-aggressive monetary policy, pumping trillions of dollars into the global economy in order to prevent it from seizing up.
What we're watching: Markets are concerned, but nowhere near panic. Investors expect inflation to average 2.44% over the next 10 years. Their longer-term outlook is for lower inflation than expected pre-pandemic.
- But the lesson of history is that when the world experiences a shock of this magnitude, consumer prices can remain volatile for some time.
