Sam Boughedda

Former Treasury Secretary Lawrence Summers and other economists said that inflation in America is now closer to the 1980 peak.

Bloomberg reports that a recent analysis of price data shows the Fed is facing greater challenges in bringing down inflation than originally predicted.

According to reports, economists used historical price readings as CPI data and applied new spending patterns for housing.

Core inflation, after they had made the adjustments, was calculated at 9.1%, as opposed to 13.6% in June 1980.

The National Bureau of Economic Research released their paper. It stated that “There have been significant methodological changes (CPI), over time,” They distort the comparisons between inflation for different periods.

The aggressive interest rate increases that Paul Volcker (then-Fed Chair) made in the 1980s lowered the core rate of inflation by about 5 percentage points, rather than the 11 recorded.

This means that Volcker’s job at the Fed is closer than we thought.

The researchers wrote that “To get to core CPI inflation of 2% today, it will therefore require almost as much disinflation than was done under Chairman Volcker”.