Tempted to believe inflation is going away?
Dream on.
Most of us believe that inflation is still a problem. This is good. The best way to cope with the future is to be realistic. It pairs nicely with “flexible” and “adaptive.”
One indication we are collectively realistic is a regular survey. Done by the Federal Reserve Bank of New York, the December survey showed that the median expectation of inflation for 2026 was 3.4 percent. The median inflation expectation for the next three and five years was 3 percent.
Not 2 percent.
Expectations aren’t facts. But what people expect lines up rather well with history. To be sure, there were some long periods of actual price deflation in the 19th century. But that was long ago.
If we examine modern history — the period from 1926 to the present — inflation has typically exceeded 3 percent a year. The measuring gauge used is the consumer price index. The inflation rate from 1926 to 2024 was an annualized 2.9 percent. That figure includes six years of actual deflation during the Great Depression.
In the 50 years between 1975 and 2024 – a period living Americans can remember — inflation ran at a 3.7 percent annual rate. Adding the 2.7 percent for 2025 won’t reduce the long-term rate by a measurable amount.
My go-to source for figures is a chart and figure book published every year by Dimensional Funds Advisors. The 2025 edition (the 2026 edition is not yet available) has nearly 90 pages of graphics and tables illustrating the returns of major stock and bond indexes, domestic and international. It also has graphic illustrations. They show the size of the global market for stocks and bonds. In 2024, for instance, it showed that Apple accounted for 4 percent of the global equity market. The entire Chinese market was 3 percent.
The table below shows the inflation rate for different time periods, including each decade since 1940. Only one decade, 2010 to 2019, had an inflation rate below 2 percent. Otherwise, all periods are more than 2 percent. Most are 2.9 percent or higher.
U.S. Inflation Is Mostly 3 Percent |
|
| This table presents annualized rates of inflation in the United States as measured by the consumer price index over different time periods in the last 100 years. | |
| Time Period | Annualized Inflation Rate |
| Last 99 years: 1926-2024 | 2.9 % |
| Last 85 years: 1940-2024 | 3.7 |
| Last 80 years: 1945-2024 | 3.7 |
| Last 50 years: 1975-2024 | 3.7 |
| Last 20 years: 2005-2024 | 2.6 |
| Last 15 years: 2010-2024 | 2.6 |
| By Decade | |
| 1940-1949 | 5.4 |
| 1950-1959 | 2.2 |
| 1960-1969 | 2.5 |
| 1970-1979 | 7.4 |
| 1980-1989 | 5.1 |
| 1990-1999 | 2.9 |
| 2000-2009 | 2.5 |
| 2010-2019 | 1.8 |
| 2020-2024 | 4.2 |
| Source: Dimensional, The Matrix Book 2025 | |
If you work for a living, it’s a very good bet that you’re going to need an annual pay increase of 3 percent to stay even. If you’re a couple raising kids, you’ll need 5 percent more. Every year.
Does anything we know suggest that inflation will decline? Sorry, short of an economic collapse, nothing in the news suggests the possibility of a lower inflation future.
But research whiteboards across the country are filled with circumstances that suggest future inflation will be at least 3 percent and, very likely, a significant amount more.
The most obvious omen is the federal deficit. It’s now running at more than $1 trillion a year. In the past we’ve had domestic institutional investors and individuals buy much of the newly minted Treasury debt. The remainder was purchased by our trading partners — the countries we had trade imbalances with. We bought their stuff with dollars. They sent some of the dollars back to buy Treasury obligations. Those purchases were part of the assets they needed to support dollar-based trade.
But Truculent America is punishing, threatening or otherwise menacing just about every nation on Earth. So many nations are selling more Treasurys than they are buying. That likely means rising interest rates. It also means increasing the cost of Treasury debt.
The alternative? Print money. But that means more inflation, not less.
Related columns:
Scott Burns, “End the Taxation of Social Security Benefits?” 2/27/24: https://scottburns.com/end-the-taxation-of-social-security-benefits/
Scott Burns, “Why Young Families Are Always Broke, 8/21/2005: https://scottburns.com/why-young-families-are-always-broke/
Sources and References:
BLS CPI Report for December 2025: https://www.bls.gov/news.release/cpi.htm
Federal Reserve Bank of New York, Survey of Consumer Expectations, December 2025: https://www.newyorkfed.org/microeconomics/sce#/
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: By my brother Doug, 6/24/24, on day 26 of our walk of the Camino, Frances route
(c) Scott Burns, 2026