Germany’s central bank is the Bundesbank. Prior to the commencement of trading of the euro in January 1999, the Bundesbank conducted Germany’s monetary policy. The Bundesbank has a reputation for pursuing general price-level stability above all else. You might say that the Bundesbank has inflation phobia. The reason for this Bundesbank inflation phobia is the remembrance of the hyperinflation Germany experienced between World Wars I and II. Given the U.S. central bank’s recent actions, it would almost seem that the Fed has developed inflation phobia too.
Although the U.S. does not have general price-level stability, the rate of change of the consumer price index (CPI), no matter how you slice or dice it, is absolutely low. This is illustrated in Chart 1. Plotted in Chart 1 are the 12-month percentages changes in monthly observations of various CPI measures – the CPI including all of its goods/services items, the CPI excluding its energy goods/services items and the Cleveland Fed’s 16% trimmed-mean CPI. The 16% trimmed-mean CPI eliminates components showing extreme monthly price changes. Eight percent of the weighted components with the highest and lowest one-month price changes are eliminated and the mean is calculated from the remaining components, making the 16% trimmed- mean CPI less volatile than either the CPI or the CPI excluding prices for energy goods/services. In the 12 months ended June 2017, the percentage changes in the CPI with all items, the CPI excluding energy items and the 16% trimmed-mean CPI were 1.6%, 1.6% and 1.9%, respectively. Moreover, the 12-month percentage change in the CPI, no matter how you measure it, has been trending lower since the first two months of 2017.
Chart 1
Plotted in Chart 2 are the three-month annualized percentage changes in the same variations of the CPI. In the three months ended June 2017, the annualized percentage changes in the CPI with all items, the CPI excluding energy items and the 16% trimmed-mean CPI were 0.06%, 1.05% and 1.05%, respectively.
Chart 2