Thursday, January 5, 2012

Global Historical CPI Pre 20th Century

Milton Friedman's famous quote on inflation explains that inflation is "always and everywhere a monetary phenomenon."  The attached chart should come as no surprise therefore, that prior to the advent of strong central banks in the 20th century, global inflation was nearly non-existent.

Global Historical CPIs

The chart, which shows global CPIs since 1750 demonstrates that chronic inflation is a 20th century phenomenon.  If anything, one could argue that CPI is in a mildly deflationary state for the 150 years between 1750 and 1900.  This makes sense, as technological advancement makes the real price of goods and services fall.  If the integrity of the currency is maintained then nominal prices should fall too.

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