March 8, 2007

JUST A DROMEDARY PHENOMENON:

Anatomy of a hump: What caused the Great Inflation? And what might bring it back? (The Economist, 3/08/07)

IF YOU were to draw the path of inflation in the typical big, rich economy over the past half century, your picture would look much like a dromedary's back: a low flat line in the 1960s; a knobbly hump of high and volatile price rises in the 1970s; dramatic disinflation in the 1980s; and low, stable inflation rates since. Japan and Germany, which were quicker to quell inflation, are well-known exceptions. But for the rest, the shape and timing of the Great Inflation bulge look remarkably similar.

This is a bulge that today's central bankers are anxious not to repeat. So it is no surprise that several governors from America's Federal Reserve are attending a conference on March 9th to discuss a new report on the Great Inflation, written by a weighty group of macroeconomists from academia and Wall Street.

Most scholars agree on a basic explanation of the hump, placing both blame and credit squarely on central bankers. Consumer prices accelerated in the late 1960s because monetary policy was too loose. German and Japanese central bankers realised this earlier than others and tightened policy accordingly. Eventually others followed suit, and general disinflation began in the early 1980s. Since then inflation has stayed under control because central bankers are credibly committed to price stability and far better at their job.

Posted by Orrin Judd at March 8, 2007 8:00 PM
Comments

Stopping inflation in the early 80s is something I don't think Ronald Reagan gets sufficient credit for. I can't think of too many presidents who would have been willing to take the steps he did.

Posted by: Matt Murphy at March 8, 2007 9:43 PM
« CRANK UP THE VCR: | Main | BALOO COULD HAVE TOLD YOU, BEARS KNOW HOW TO GO WITH THE FLOE: »