Now, this should not be considered a response to Nate's post on inflation, as it is not an integral part of the great inflation-deflation debate, but rather tangential to it. It is simply an off-shoot of some research I was doing that is not going to be part of my core argument. But I'm posting it nevertheless because it is interesting and should help put in context precisely where we happen to be at the moment with regards to recent price movements. We could, of course, use CPI, but I don't pay much attention to it since with all of its hedonic adjustments and so forth, I regard it to be as about as relevant to reality as the average science fiction novel. And while I am very well aware of the various shortcomings of using a commodity price such as gasoline as an inflation metric, given the inevitable effects of supply and demand, it nevertheless can be readily observed that the price of gasoline is an even more "inflationary" one than than simply relying upon CPI. Which is to say, using gasoline as a metric instead of CPI will tend to be a more favorable one to the inflationary case for those contemplating the inflation/deflation question.
To the best of my knowledge, the price of gasoline was $0.12 in 1913. Another reference cites $0.25 in 1918, but I will go with the lower and older one as it is less favorable from the perspective of my deflationary position. Utilizing the CPI, this provides an estimated equivalent price of $2.79, which is much lower than the current national average price of $3.74.
Now, given the massive amount of M2 money creation that has taken place since the financial crisis hit in Q3 2008, we would expect that at least an amount of that $3.62 increase in price per gallon has taken place since then. But look at the 60-month history of gasoline prices, which actually fell dramatically in the first six months post-crisis, from $4.12 at the onset of the crisis to $1.61.
Prices have gradually worked their way up since then, but from an inflationary perspective, things have remained essentially flat over the last five years, which the observant reader will recall tends to be considerably more in line with the flat state of total credit market debt outstanding than with the continued expansion of M2.
Please note that I am not claiming that this proves anything yet, I am simply pointing it out to counteract the common assumption that price inflation is as rampant as it is presently perceived to be due to gasoline prices threatening to return to their previous all-time highs.