For the last two decades, Americans have enjoyed one of the most benign inflationary environments in the country’s history (as measured by the Consumer Price Index, or “CPI”), a far cry from the late 1970s when inflation peaked at more than 16 percent and 10 percent year-over-year jumps in the CPI were becoming routine.
Since then, the Federal Reserve has sought to keep inflation in check by carefully monitoring interest rates and the money supply. The result has been an average annual increase in the CPI of 2.50 percent for the past 20 years (i.e. the compounded annual growth rate from Dec. 31, 1990 to Dec. 31, 2010), leaving inflation essentially “out of sight and out of mind.” And inflation was pushed even further down the list of concerns at the start of the financial crisis as everyone’s attention instead turned to the very real question of whether the global economic system was about to disintegrate, creating worldwide deflation.
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