The Summers Group says that US inflation is closer to its peak in 1980 than it was in the past.
A new look at historical price data shows that US inflation is much closer to its peak in 1980. This means that the Federal Reserve’s goal of bringing price gains back to its target is about the same size as Paul Volcker’s goal at the time.
A group of economists led by former Treasury Secretary Lawrence Summers reconstructed past consumer price index values to reflect how people buy things today, especially housing.
According to the article by economists Marijn A. Bolhuis, Judd N. L. Cramer, and Summers, after the numbers were changed, core inflation was 9.1% in June 1980. This was much lower than the reported peak of 13.6%.
That is, Volcker’s strong tightening of the money supply at the beginning of the 1980s cut core inflation by 5 percentage points, not 11 points as the official records say. Because of this, the Fed’s job seems to be about the same size as Volcker’s, which involved a big recession.
In April, the core CPI went up by 6.2 percent. The Fed’s goal for inflation is 2%, but it is based on a different price index that averages less than the CPI. Economists think that the core CPI number for May, which will be released by the Bureau of Labor Statistics on Friday, will be 5.9%.
The researchers wrote in the National Bureau of Economic Research paper that “To return to 2% core CPI inflation today will thus require almost the same amount of deflation as was achieved under Chairman Volcker.”
The study finds that inflation rates in the years after World War II were about the same. According to the report, when temporary goods were given less weight, the highest point of core CPI inflation in June 1951 dropped from 7.2% to 5%, and the highest point of headline CPI inflation dropped from 9.4% to 3.3%.
