Abstract

There is no doubt that one of the most important current economic problems is inflation. The long period of relative price stability from 1958 to 1964, during which the Consumer Price Index (CPI) rose an average of 1.2 per cent annually, ended in 1965, when the CPI increased 2 per cent, the largest annual increase since 1957-1958. Certainly, a casual examination of the data does not support the contention that the guideposts have been effective. The CPI is drawn from 1954 through August 1966. A trend line was fitted to the monthly data from 1958 through 1961 and extended backward to 1954 and up to and beyond the present. If the guideposts are, in fact, an effective anti-inflationary policy instrument, the CPI should lie below the trend line in the period since January 1962, and the gap should tend to increase continually in each successive month. However, it is seen that, in fact, the CPI was virtually on the trend line from January 1962 through mid-1965, as it was during 1958-1961. Furthermore, in 1965 the CPI moved well above the trend line. Evidently, the rate of inflation has not diminished since the inception of the guideposts; indeed it appears to be increasing.