US Inflation Closer to 1980 Peak Than Previously Believed By

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© Reuters. US Inflation Closer to 1980 Peak Than Previously Believed

By Sam Boughedda

Economists, including former Treasury Secretary Lawrence Summers, said inflation in the US is even closer today to its 1980 peak.

According to a report by Bloomberg, a new analysis of previous price data suggests the Fed’s job of bringing inflation back to its target is more challenging than initially predicted.

The economists reportedly recalculated previous price readings for the CPI and applied modern spending patterns, particularly for housing.

Once they added the adjustments, core inflation was said to run at a calculated 9.1% in June 1980, compared to the reported peak of 13.6%.

“There have been important methodological changes in the Consumer Price Index (CPI) over time,” the researchers stated in their paper, which was released by the National Bureau of Economic Research. “These distort comparisons of inflation from different periods.”

As a result, the aggressive interest rate hikes during the early 1980s, conducted by then-Fed Chair Paul Volcker, lowered the core inflation rate by approximately 5 percentage points and not the recorded 11 percentage points.

That means that the Fed’s current job is nearer to Volcker’s than previously thought.

“To return to 2% core CPI inflation today will thus require nearly the same amount of disinflation as achieved under Chairman Volcker,” wrote the researchers.

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