What Does 1000 Years of Inflation Data Tell Us
- By Bilal Hafeez
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- 2 min read
Many view the recent few decades of low inflation as the exception, rather than the rule. Indeed, many inflation hawks are looking for mean reversion to a ‘natural’ state of higher inflation that could include a return to 1970s-level inflation. However, a more complete sweep of history shows that low inflation is the ‘natural’ state, and the 1970s was an extreme exception. In some ways, we have needed decades to unwind the 1970s inflation overshoot.
The UK provides the longest history of inflation data. It goes back to the 1200s in the Middle Ages. We find that over this almost 1000-year period, inflation has averaged around 0.9% (Chart 1). During this period, bouts of deflation were the norm including during the industrialisation phase of the 1700s and 1800s. In earlier periods, high inflation typically occurred during wars, but the 1900s onwards saw the worst bouts of inflation with the 1970s the most extreme.
Many view the recent few decades of low inflation as the exception, rather than the rule. Indeed, many inflation hawks are looking for mean reversion to a ‘natural’ state of higher inflation that could include a return to 1970s-level inflation. However, a more complete sweep of history shows that low inflation is the ‘natural’ state, and the 1970s was an extreme exception. In some ways, we have needed decades to unwind the 1970s inflation overshoot.
The UK provides the longest history of inflation data. It goes back to the 1200s in the Middle Ages. We find that over this almost 1000-year period, inflation has averaged around 0.9% (Chart 1). During this period, bouts of deflation were the norm including during the industrialisation phase of the 1700s and 1800s. In earlier periods, high inflation typically occurred during wars, but the 1900s onwards saw the worst bouts of inflation with the 1970s the most extreme.
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