I don't know where this 1.5% inflation figure is coming from. I am seeing a 10-40% (or more) increase in food prices when shopping for groceries. Bottle of hydrogen peroxide used to cost $1.69 a year ago, now costs 2 dollars. I don't belive this 1.5% figure, it does not match what I observed.
Think about it, how could it be that it is only 1.5% inflation when the size of the money supply is doubled or tripled?
It's a little more complicated than that. For one thing, people use the word "inflation" to mean two different (but somewhat related) things. When you or I say "inflation" what we really mean is an increase in the cost of living. But even beyond that everyone has a different cost of living - I bought a house this year, and I paid about half what I would have paid three years ago. When the government reports CPI this is part of the calculation.
For the Fed, "inflation" means an increase in the overall money supply. You get an increase in the money supply when people borrow money, and you get a decrease in the money supply when people pay off (or default) on loans. In a macro-economic sense we've been going through a period of pretty severe deflation since the housing market crashed, which is why the Fed is desperately pumping money into circulation. For all the gory details see here:
Actually, house prices are not factored into the CPI per se. The CPI is based on a basket of goods for an urban consumer who rents (so does include rent). If you don't fit that profile, the CPI may well not have much applicability to you....
Aslo, the Fed is not desperately pumping money into circulation. For example, they're paying interest on reserves (that is, paying banks to park money in accounts at the Fed). If they were trying to get money into circulation, the wouldn't be doing that, or would even be charging interest on excess reserves. Both policies have been used by central banks in the past; in fact the Fed didn't use to pay interest on reserves until the recent bank crisis started.
> I don't know where this 1.5% inflation figure is coming
> from.
For inflation expectations? TIPS spreads.
The actual inflation rate is determined based on a basket of goods, which may or may not match your consumption patterns. Of course things get complicated by substitution effects, hedonic adjustments, etc. I don't know that I believe the official number any more than you do. But the fact is that the official number is what the Fed is supposed to target.
Note that groceries are explicitly excluded from "core" inflation calculations in the US because they're subject to severe supply shocks which have nothing to do with the value of money or inflation, by the way.
> how could it be that it is only 1.5% inflation when the
> size of the money supply is doubled or tripled?
Trivially, if everyone keeps their money under a mattress. We're not quite that bad, but not much better off right now, either.
The "amount" of money is the total outstanding dollars multiplied by the number of times it changes hands (the "speed"). When the economy slows down, the government borrows money and spends it on stimulus, where they hope it will circulate, changing hands as many times as possible.
Think about it, how could it be that it is only 1.5% inflation when the size of the money supply is doubled or tripled?