Carpe Diem

Fed Chair Ben Bernanke does have one of the best inflation records since WWII

inflation1

From CNBC about Ben Bernanke’s testimony yesterday before the Senate Banking Committee: “In criticizing the central bank’s easy monetary policy, Sen. Bob Corker, a Republican from Tennessee, called Bernanke the biggest dove since World War II. Bernanke was quick to push back. “You called me a dove, well maybe in some respects I am, but on the other hand my inflation record is the best of any Federal Reserve chairman in the postwar period – or at least one of the best,” he said, citing the 2 percent average inflation rate.”

The chart above shows the annual inflation rate calculated from the Consumer Price Index on a monthly basis back to January 1948, and also displays the average inflation rate over the tenure of the last seven Federal Reserve Bank chairmen, starting with Thomas McCabe in 1948. Since Bernanke took over as Fed Chair just about seven years ago in February 2006, the average annual inflation rate has been 2.3%, and has fallen to an average of 2% over the last year. In seven out of the last nine months, the inflation rate has been below 2%.

Bottom Line: Bernanke is correct — he does have one of the best inflation records since WWII for Fed chairmen. Only William McChesney Martin’s record of 2.2% average inflation from April 1951 to January 1970 was just slightly below Bernanke’s record of 2.3% on average, but inflation was trending upward during the last decade of Martin’s tenure as Fed chair, and was above 6% when his term was ending in early 1970. In contrast, inflation in the most recent month of Bernanke’s term — January 2013 — was only 1.6%.

Update: The chart above now shows average annual inflation rates during the terms of the last seven Fed chairmen based on the GDP deflator (in parentheses), as an alternative inflation measure to CPI inflation. Note that based on GDP deflator inflation, Bernanke does have the best inflation record of any Fed chairman since WWII at 2.1% (1.8% for the most recent quarter).

39 thoughts on “Fed Chair Ben Bernanke does have one of the best inflation records since WWII

  1. “…my inflation record is the best of any Federal Reserve chairman in the postwar period…

    Gee, I wonder if Chairman Bernanke will take credit for the financial crisis also?

  2. Why didn’t I see it before? By the government’s own numbers, this is the best government ever! By the government’s own numbers we are spending exactly the optimal amount of money and all cuts would be disastrous! Finally, my fears have been quelled. I guess I shouldn’t care about the 0.5% interest rate I’ve been getting, after all.

  3. this is apples and oranges.

    i’m not looking to open up the “inflation is understated/overstated debate here” but there is one incontrovertible fact here:

    during greenspan’s tenure the cpi methodology was changed dramatically. whether this made it more or less accurate is irrelevant. what is relevant from this standpoint is that is was changed significantly and now reads considerably lower than it would have in the 80′s for any given state of the world.

    the pre change data and post change data are not really comparable.

    it’s like swapping a speedometer in kmph to mph and saying, wow, we really slowed down.

    ben is not making a valid comparison. the only data to which his performance is directly comparable is the 2nd half of greenspan’s tenure.

    it’s also the uncontested worst recovery from recession since ww2 with growth 12 q’s out even worse that the period that included the volcker double dip when he broke inflation (and using a lower gdp-d to boot).

    • Even if they were comparing apples to apples, which I agree they aren’t, does it even matter anyway? All measures of inflation using prices make no sense.

      Okay so that same burger costs me 3% more today than last year, but what about that TV with technology that didn’t exist last year and the lower price I paid for it than my CRT?

      It seems to me that the only way of measuring “inflation” would be through a fixed asset like gold or at least trying to understand what prices would have been in the absence of or under a different quantity of money printing.

      • mark-

        the gdp-d methodology was changed as well, so that is not a surprise.

        note that it has tracked with CPI.. how could gdp-d keep tracking cpi if it did not also change?

        gdp-d is not an independent check on this. it was affected by the same methodological changes.

        also note, gdp-d has been consistently tracking considerably lower than cpi for the last 8 q’s which is unusual. i’m not sure there has ever been such a one sided excursion. it tended to track cpi and bounce above and below it, but lately, it’s all been one sided. if you deflate the last 8 q’s with yoy cpi you get considerably less reported growth.

        .

        • gdp-d is not an independent check on this. it was affected by the same methodological changes.

          also note, gdp-d has been consistently tracking considerably lower than cpi for the last 8 q’s which is unusual. i’m not sure there has ever been such a one sided excursion. it tended to track cpi and bounce above and below it, but lately, it’s all been one sided. if you deflate the last 8 q’s with yoy cpi you get considerably less reported growth.

          Mark is not interested in facts when they get in the way of narrative. You should know that by now. His analysis tends to be very superficial most of the time and he only starts to dig into the detail when he thinks that there is something that supports his point.

  4. What a JOKE!
    REAL INFLATION has been GIANT through o’bama printing TRILLIONS of “dollars” that devalue money, which is thus HIDDEN INFLATION!
    The author of this article ought to retire.

  5. Once again:

    1) The definition of inflation is an increase in the money supply (which, incidentally, Bernanke has tripled)

    2) The CPI is engineered to mask price increases.

    3) One reason why prices aren’t skyrocketing is because the economy is basically in recession.

    4) Prices should be decreasing in periods of economic weakness, as producers need to unload goods at market-clearing prices. That prices are still rising shows the damage of the Fed’s money printing.

    5) Printing money hurts savers and encourages reckless lending/borrowing — the very problems that ignited our current crisis. I can’t believe some people think the best course of action is to go through this whole process again. It’s hardly impressive that Bernanke is re-inflating the housing bubble. True economic progress would have housing prices going down — as home ownership becomes more affordable to more people.

    6) Actual prices are rising much more than is being reported by the CPI.

    - If we used the same barometer as during the Volcker era, we’d see rates around 10 percent, according to this CNBC article: http://www.cnbc.com/id/42551209

    - Shadowstats puts the rate at 10.3 percent: http://www.moneynews.com/Economy/CPI-Conspiracy-inflation-economy/2012/04/19/id/436430

    - The American Institute for Economic Research puts the rate at 8 percent: http://www.cbsnews.com/8301-505144_162-57387655/inflation-not-as-low-as-you-think/

    7) Peter Schiff demolishes the CPI here: http://www.youtube.com/watch?v=pwI3Nya5L9g

    • I agree with what you have posted. The problem is that many people are fooled by the methodology changes and the narrative pushed by the Fed and its supporters on the right and left. From what I see on this site the right is no better on the issue of money and economics than the left. Both agree on the need for top down planning and are only arguing about who should be calling the shots. But the way things are going that struggle, to quote Jose Luis Borges, is turning into one of two bald men fighting over a comb.

    • tom-

      no, it isn’t.

      i have no idea where this pervasive belief comes from. inflation is a change in the price level.

      http://www.investopedia.com/terms/i/inflation.asp#axzz2MCxWeAtU

      the change in money supply is called “change in money supply”.

      to be sure, it can feed inflation, but it is not enough to do so by itself in every case. if money supply rises by less than output, you can have rising money supply and falling prices for goods and services.

      the case for printing money hurting savers is far less straightforward than you seem to be claiming. there are numerous trade offs. sure, if money appreciates then money stuffed in your matress becomes more valuable. but this affects nominal interest rates as well. i will pay far less to borrow money under such conditions. the real interest rate paid to a saver may well be lower under deflation. examine japan to see how this can work.

      deflation can also have ripple effects through an economy and inhibit capital investment which has dire effects on future output. the case is nothing like as simple as you lay out.

      i agree that the CPI is not an inflation measure and masks actual price level changes, but i think we need to be clear when making arguments just what inflation means.

      inflation is the change in the price level of goods and services.

      • no, it isn’t.

        i have no idea where this pervasive belief comes from. inflation is a change in the price level.

        [link]

        the change in money supply is called “change in money supply”.

        Well, that’s one definition. In my view the Austrian explanation is more complete, and includes the price inflation definition.

        Hazlitt explains monetary inflation as an increase in the supply of money greater than the demand for money, which means more money chasing the same amount of goods and services, which leads to price inflation. This, of course, requires that the additional money actually gets used in transactions, and doesn’t just “sit in bank vaults” as higher reserve balances.

          • IBD makes mention of Wage Recession, does that figure in somewhere?

            Gee juandos, I don’t really know how to answer that. I don’t understand the question, I guess.

          • I don’t understand the question, I guess“…

            Well ron h everytime inflation is mentioned I don’t in terms of cpi, gdp, but of what can net dollar the consumer has in his/her pocket no longer buy at the price they used to buy it at…

            It would seem to me that a ‘wage recession‘ would contribute to that inflation problem in the real world…

          • Well ron h everytime inflation is mentioned I don’t in terms of cpi, gdp, but of what can net dollar the consumer has in his/her pocket no longer buy at the price they used to buy it at…

            An item that is missed is the fact that there is no one thing that can be purchased in an economy. There are consumer goods. There are producer goods. There are commodities, real estate, services, equities, and bonds. How can we argue about general moves in prices when we ignore prices of such things as bonds or equities? All the money printing does not have to lead to an immediate jump in any one category, particular when you have major shifts due to the bursting of bubbles created by previous inflation of the supply of money and credit.

            Given the fact that nobody here can tell me about the change in the general price of a simple category like tomatoes how can they talk about the total price change for the economy?

            It would seem to me that a ‘wage recession‘ would contribute to that inflation problem in the real world…

            That is one of the big problems with the strategy pursued by Bernanke. Prices can rise but when they rise faster than wages there will be a great deal of dissent and trouble.

          • How can we argue about general moves in prices when we ignore prices of such things as bonds or equities?“…

            An absolutely valid point without a doubt vangel but when standing in front of the gas pump and even though I understand intellectually why the price is 17 cents a gallon more this week than last, its not much comfort since my own ‘purchasing power‘ hasn’t gone up by a commensurate amount…

            Given the fact that nobody here can tell me about the change in the general price of a simple category like tomatoes…“…

            There can be a lot of regional variables going into the consumer price of fruits and vegtables…

            I know the reasons and can spell them out but some or maybe even all those reasons may or may not apply in California or Wisconsin…

            Prices can rise but when they rise faster than wages there will be a great deal of dissent and trouble“…

            Oh yeah!

          • There can be a lot of regional variables going into the consumer price of fruits and vegtables…

            It is not just that. There are many different varieties. There are many different grades of quality and freshness within each variety type. There is the distance to market question, the volume of buying, etc., etc. If the BLS people can’t even figure out the details to provide a meaningful statement about the general price changes of a relatively insignificant category why are we to assume that they can make a meaningful statement about aggregate prices? Their calculations make about as much sense and have as much meaning as calculating the change in the value of the average telephone number in the United States.

            I know the reasons and can spell them out but some or maybe even all those reasons may or may not apply in California or Wisconsin…

            Human beings are great at telling stories and making up explanations. The problem is that those do not always reflect what is going on in the real world.

        • cpi is also a game of double counting.

          they reduce reported inflation in 2 ways: quality adjustments and weighting changes.

          each seems plausible on its own.

          if a new phone has longer battery life, then it can be said to be better (though ow much so is so totally subjective as to create more problems than it solves).

          if the price of rib eye steak rises then you eat more flank steak. this is also likely true, but takes inflation away from being a measure of the price level and shifts it to cost of living, which is not the same thing. (and also assumes that price changes all emminate from supply and no increased demand)

          but when you combine the 2, you get some serious problems.

          let’s take a very simple example from real CPI.

          if the price of prime t-bone rises consumers eat fewer and shift to say, choice sirloin. this happened in the CPI basket. all the prime cuts were taken out and replaced with choice cuts.

          even if we accept the premise that this is a valid way to measure price level (which i do not) we run into a serious problem:

          there ought to be an offsetting negative quality adjustment and there isn’t.

          choice sirloin is lower quality than prime t bone. how do we know? because consumers will pay more for a prime t-bone. they value it at more, and to ignore this is willful deception.

          the weighting shift from tbone sirloin ought to be offset by a negative quality adjustment.

          but this never happens in cpi which leads to double and miscounting.

          if we are going to count better battery life as disinflationary, then we must also count lower quality meat as inflationary.

          CPI was changed to keep entitlement COLA adjustments low. if this seems far fetched, note that congress is looking to do it again right now.

          • they reduce reported inflation in 2 ways: quality adjustments and weighting changes“…

            Yeah morg, the ‘weigning‘ part is really the trick I’d like to see their rationale for…

            That ought to be a bit of entertainment…

            CPI was changed to keep entitlement COLA adjustments low“…

            Oh yeah…

            Remember Alice Rivlen – 1982?

          • juandos-

            yup. it took some time for Greenspan to find a president that was willing to manipulate the numbers this way, but clinton jumped on it. then, later, they pick an academic with similar views and fund him for air cover.

            if you have never read the actual boskin report, i strongly recommend it. it’s a complete white wash and virtually empirical evidence free. it’s just a bunch of tangled and self contradictory high level musing.

            it’a amazing that they could come up with such specific claims on CPI bias with no actual empirical facts. why, it’s almost as if they started with their conclusion and then made up a reason… of course, a committee commissioned by the senate to research COLA would never do that, would they?

            of interest, even the boskin report refers to its measure as a measurement of the cost of living. the sleight of hand is pretending that that is the same as inflation.

            it’s not.

            you can say hey, you ate flank not tbone, so your cost of living dropped even if the price of both flank and tbone went up, which is, of course, what inflation actually means.

            cpi in its current incarnation does not even try to be an inflation measure. it, by design, underweights or drops entirely good that go up most in price.

          • it took some time for Greenspan to find a president that was willing to manipulate the numbers this way“…

            LOL! Good way to describe it…

            A few years ago I remember reading a critique of the Boskin report at the econolib site (wish I could find it now) make the same point you made regarding empirical evidence…

  6. Of course, if prices should actually be declining, as we might expect in a protracted, deep recession, then 2% price increases might actually imply that the Fed is pumping inflation at a much higher rate. This could be the same myopia that the Fed exhibited in the late 1920s when prices SHOULD have been falling due to huge productivity gains, but the Fed pumped up inflation to keep prices ‘stable’.

  7. Inflation is a lagging, not a leading event. It’s an artifact of years of cumulative currency debasement; builds slowly. We’d gradually accelerated the process then called “monetizing the debt” for nearly a decade before the inflation storm arrived in 1979 and 1980. For Ben to claim purity on this issue is cynical in the extreme, as he knows full well he’s laying a monetary trap that won’t spring until long after he’s gone.

  8. Ben’s proud of “his” low inflation in the deflationary aftermath of a burst bubble in the asset that composes the real net worth of the vast majority of Americans? Yea… Thanks Ben. (and especialy Alan).

    I’m lucky enough to have as much of my net worth in liquid assets as I have…. had in my home. Regrettably I’m too stupid to understand how much power Ben had but smart enough to understand how screwed up the system was, so I’ve had my money mostly in cash. Thanks Ben for that too, I’m earning nothing (as are all savers) but still being eroded by “your 2%” inflation.

    And most importantly, it’s myopic to look at “the level” of inflation during Ben’s tenure (and Dr. Perry inferred this by pointing to Martin’s “trending upward” inflation). We need to look at how his policies have affected inflation (and employment/unemployment under the new mandate). And let’s compare Ben to Volcker (gleaned from FRED database).

    Ben Volcker
    Infla-Begin ~3.8% 12%+
    Infla-End ~2.0% ~2.0%
    status flat soon spikes to 4%

    UnEmpl-B ~4.6% ~7.0%
    UnEmpl-E ~7.9% ~5.5%
    status Declining same

    Empl-B 135mm 90mm
    Empl-E same 105mm
    status SlowUP FastUP

    Empl/Pop-B ~63% ~60%
    Empl/Pop-E ~59% ~62%
    status flat FastUP

    Volcker started with double digit inflation and his raising of the rates was a major contributory factor to the reduction in inflation to levels that Ben is proud to have! Volcker may have caused a recession by this policy, but like pre-1929, the economy was quick to recover and then we boomed. “Volcker’s unemployment” rate quickly spiked to almost 11% as he tightened the screws, but by the time he left it was 1.5% below the level Volcker started with and was half the rate that it peaked at. Ben’s unemplyment rate was about 4.6% when he came in but quickly spiked to 10% after the financial panic. Unemployment has since declined 7.9% but it has been slow to come down asBen admits (and there are “caveats”, see below)(and I blame Alan for the spike, not Ben).

    Under Volcker, employment was around 90 million when he came in and surprisingly did NOT spike when he tightened the screws and caused the “double dip” (recession). However, employment began climbing rapidly after Volcker’s recession ended and continued to move up after his term. For Ben, employment was barely moving up when he came in and the financial panic dropped it from ~140mm to ~130mm. It has since climbed back to 135mm (and also has a caveat).

    Caveats: The employment to population ratio: For Volcker, the employment to population ratio dropped from 60% when he came in to 57% when his recession ended, but quickly rebounded to 60% and then climbed more gradually to around 62% when Volcker left. Looks good to me! For Ben, much “consternation” has been expressed about the employment to population ratio, which was around 63% when Ben came in but dropped hard, rapidly hitting 58.5% due to the financial panic and has stayed since at this level. Detractors of Ben say this is the reason the unemployment ratio has declined; however, if so many people have dropped out of the workforce AND employment has still increased, isn’t this a positive? Or is it a negative because so many left and only some of those vacancies have been filled?

    Overall, Volcker gets several stars in my book. As for Ben, the employment situation looks poor. Unemployment looks even worse, but you have to concede that Obama has worked so hard at providing the unemployed with benefits that the “stickyness” of unemployment might not be Ben’s fault. Still, given the employment to population numbers, I don’t trust Ben’s numbers! Can’t give a star to Ben yet (except maybe one for preventing a complete meltdown, but as an “Austrian” and Libertarian, I’m not sure if it would have been a bad thing…. certainly our activist government would have helped pick up the pieces after the fact and IMHO one of the big problems in our society is that there is NO failure anymore, not in business, doubtful in classrooms and certainly NOT in children’s activities where everyone gets trophies, “everyone’s a winner” and there is “nothing wrong” with losing… which mean there’s nothing to be learned from losing!)

    And one last note, look at the composition of Ben’s inflation: Using the FRED database and looking at overall inflation, the food componant (at home, 8.6% wgt, total wgt~15%), the gas componant (5.5% wgt) and the home/rent componant (31.5%) , well, do I really even need to explain? Food is up, home/rent is even up, and we all long for the $2.50 gasoline we had when Ben started. Pumping out all that money might not yet appear in overall inflation, but if you look closely, the warning bells are ringing!

    And by the way, I’ve noted 52% of the CPI is increasing at a rate above the overall CPI, so what componants in CPI have brought it down? Dr. Perry often points out explosive growth in medical costs (7% wgt) and education (3%, but just 1.7% for the college wgt), so I guess it’s time to use transportation (11.2% xFUEL) to go on a vacation to have fun (recreation, 6%) and to buy some apparel (3.6%), cause these things must be just about free now!

    Any star I might consider giving Ben for possibly preventing a financial meltdown I would have to take away. The reason? As far as I can recall, all FED chairmen have been independent. Ben’s proud of “his” low inflation so this is no threat. Unless Ben see’s real risks in the financial system, his decision to keep printing money with a too slowly improving economy and unemployment as the excuse, well, this smells more political than independent.

    • Overall, Volcker gets several stars in my book.

      The problem is that Volcker was one of the people who convinced Nixon to delink the USD from gold and is, in a way, responsible for what we have today. He has always been an elitist who favoured top down planning in monetary policy because he did not trust the markets. While he can be said to be one of the better central bankers in the past half century that is like saying that he was the kindest guard at a concentration camp.

  9. The cluelessness of Senator Corker is extensive, far-reaching and astounding. The Guinness Book of World Records is calling….

    Actually, the CPI is down or flat in seven of the last monthly readings. As Dr. Perry points out, the GDP or PCE deflators are down too. The MIT Billion Price index is down—–dudes, inflation is dead.

    You can say Liberace will make a comeback, and that the CPI is going to roar back too. Doesn’t make it so.

    Inflation is dead, only the Chicken Inflation Littles are still squawking.

    The much more serious risk is the deflation we are now in—deflation. Check out Japan for the last 20 years. Deflation is a bad situation to be in.

    Many say we will still be stuck with low interest rates and low inflation when the next recession hits…..oh, that will make for some very ugly times.

    Think about your house or stock portfolio in a deflationary recession. It will be uglier than an unflushed toilet in a Tallahassee trailer park.

    Think Japan, dudes.

    You will pray to see moderate inflation again…..

    • Think Japan, dudes.

      You will pray to see moderate inflation again…..

      Wrong on the first part. Right on the second.

      The US is in the same position as Greece. While the money supply is being increased at a rapid pace the USD does not weaken much because other currencies are managed as badly if not worse. But the money is causing prices to rise. Commodities have gone up sharply. Even though we have a weakness in the real economy and the consumer is short of cash the financial system is swimming in liquidity and is using it to prop up the bond market, which is now the biggest bubble in history. When that bubble is popped the USD will collapse and destroy what is left of the purchasing power of American savers. Expect public demonstrations and conflict.

  10. O’Driscoll’s op-ed in today’s WSJ clears the air on Ben’s cynical self-congratuatory statement and make’s Mark’s comments look naive. O’Driscoll equates Arthur Burn’s political subservience to Nixon with Bernanke’s to Obama, and that’s dead on the money. Mark, I’m a fan, but put down the Bernanke Kool-Aid and slowly back away from the Fed. Blowing asset bubbles to fix a problem caused by popped asset bubbles is not fixing anything … the computer models are shot full of holes … Lord Keynes would be totally aghast.

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