This is one of the most important charts in economics.
If Google search queries are any guide, people are always WAY more interested/concerned with inflation rather than deflation.
Even during the worst deflationary collapse during 2008 — when everything from home values to gold to oil dove — people were more interested in inflation than deflation.
This phenomenon is incredibly important.
Despite a slowing economy, declining home values, dormant lending, and very little wage growth, you have influential people, like Dallas Fed President Richard Fisher saying today that he’s worried that the Fed’s latest statement will increase inflation expectations. That possibility, that people might expect more inflation, and that that might beget more inflation is of more concern to him than the present deflationary forces happening in the economy.
What explains the inflation obsession?
The fear that one day you’ll wake up out of bed, and your life savings will be worthless because the government inflated away the value of your cash is probably a big part of it. People confuse inflation with hyperinflation (the complete collapse of confidence in a currency) and admittedly that is a scary phenomenon.
What’s more, the obsession with inflation seems to be rooted in a few past incidents. Germans, famously, clink to memories of Weimar hyperinflation in their effort to counteract any policy that might cause prices to rise more than 2% in a year.
Meanwhile, many people who are these days in power have bad memories of the inflation in the 1970s as well as good memories of the declining inflation of the Reagan era.
(BTW: In case you haven’t seen the 30-year grind lower in inflation since the early 80s, here’s a chart of that. It shows the year-over-year change in the CPI since then. Though it’s popped up lately, remember we’re coming out of a huge price slump.)
The funny thing is, in America, the two scariest periods in our economic history were periods of deflation (The Great Depression and the The Great Recession), and yet outside of a handful of monetary policy people (like Bernanke) vigilance at avoiding deflation isn’t a big priority.
Even now: The ominous re-decline in commodity prices isn’t getting people worked up the way higher gasoline prices did.
In the end, extreme bouts of either deflation or inflation are not desirable. But it certainly seems that the constant concern about one, rather than the other, harms economic debate and policy-making.