I have been saying for 5 years the US would follow the path of Japan. An interesting chart in the New York Times shows this is indeed what has happened.







click on chart for sharper image



Following Japan's Path, So Far



In the United States, the core consumer price index, which excludes food and energy prices, rose 0.6 percent in the 12 months through October. That was the smallest 12-month gain since government calculating the figure in the 1950's. The chart shows the 12-month changes in core CPI for the US and Japan, in the years before and after housing prices peaked in each country.



The above chart and commentary is from After the Fed’s Action, Watching Inflation’s Trajectory



Since the collapse of the housing market in the United States and the beginning of the global financial crisis, the Federal Reserve has made avoiding deflation a major priority, recalling the experience of Japan after its bubble burst in the early 1990s. The Fed has set an annual inflation target of 2 percent or a little lower, but is not getting it.



The latest figures, released this week, showed that overall inflation in consumer prices was 1.2 percent in the 12 months through October, while the core inflation rate — excluding food and energy — rose just 0.6 percent. The previous low for that index, of 0.7 percent, came in the 12 months through February 1961, when the economy was in recession.



As the accompanying chart indicates, the core inflation figures are charting a path roughly similar to one shown in Japan 15 years earlier. That has been true despite a much stronger reaction by the American central bank, which was determined not to make the same mistakes the Japanese made.



This week, a group of Republicans proposed to change the Fed’s dual legal mandate, which calls on it both to keep inflation tame and to fight unemployment. “It’s time to return the Federal Reserve to the singular mission of protecting the fundamental strength and integrity of the dollar,” said Representative Mike Pence of Indiana, a Republican and chief sponsor of the proposal.



There are times when the dual mandate seems contradictory, but this is not one of them, and it is unlikely the Fed would change course if it had a single mandate.

Major Disagreements With Times Article

Republicans Need to Admit US Cannot Afford to be World's Policeman

Democrats Need to Admit Problem with Public Unions

Search for Scapegoats Avoids the Truth

Madness of Bernanke

Bernanke Doubly Wrong