As per Summers Group, US inflation is closer to 1980 peak than previously

• According to the analysis, the core CPI in June 1980 was 9.1 percent, not 13.6 percent.
• According to the paper, more pain may be required to stop inflation now.

Fresh analysis of historical price data suggests that US inflation is running much closer to its 1980 peak, implying that the Federal Reserve’s mission of bringing price gains back to its objective is similar in scale to that of then-Chair Paul Volcker.

A group of economists led by former Treasury Secretary Lawrence Summers reconstructed past consumer price index values to reflect modern-day purchasing patterns, particularly in housing.

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After modifications, the numbers showed that core inflation was 9.1 percent in June 1980, compared to the reported peak of 13.6 percent, according to the article by economists Marijn A. Bolhuis, Judd N. L. Cramer, and Summers.

That is, Volcker’s strong monetary tightening in the early 1980s reduced core inflation by 5 percentage points, not the 11 points reported in the official annals. As a result, the Fed’s mission today appears to be on a scale similar to Volcker’s, which involved a significant recession.

The core CPI increased by 6.2 percent in April. The Fed’s inflation target is 2%, but it is related to a different price index that averages somewhat less than the CPI. Economists predict that the May core CPI figure, which is coming Friday from the Bureau of Labor Statistics, will be 5.9 percent.

“To return to 2% core CPI inflation today will thus require nearly the same amount of disinflation as achieved under Chairman Volcker,” the researchers said in the paper published by the National Bureau of Economic Research.

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The study finds comparable results for inflation in the years following World War II. According to the report, when transitory goods components were given less weight, the high of core CPI inflation in June 1951 fell from 7.2 percent to 5 percent, and the top of headline CPI inflation fell from 9.4 percent to 3.3 percent.

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