The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 51

Wholesale Inflation

Do you believe that persistent high inflation is an unavoidable fact of economic life? If so, think again. Along the way, study the chart of wholesale prices for 1749–1980. The word wholesale refers to goods sold before their incorporation into a finished product. The index is based on commodities (like sugar) and manufactured products (like wire or shoe soles).

There are several ways to view this chart—all good ones. First, compare the number of years when prices rose against the number of years when prices fell. Interestingly, they are about equal. Starting with the cyclical upspike of 1779, there have been 103 years of rising prices out of 201 total years. This may not be surprising, since what goes up often comes down. But in looking at America's five prominent inflationary spikes, you are immediately struck by three interesting facts: First, inflationary spirals have tended to occur during or immediately following major wars. Second, they do not appear very often. Third, inflationary peaks have occurred about every 50 years.

Allow the vertical scale at 80 to represent the average for prices for the chart's first 200 years. This is another way to show the same thing, namely, that prices have been low for far longer than we've suspected.

What does all this mean? Recently most folks have expected that prices will continue rising forever. But there is nothing from history to say that inflation runs in only one direction. Although inflation has been ...