US inflation is getting closer to its 1980 peak, according to the latest historical price data analysis conducted by a group of economists.
Former Treasury Secretary Lawrence Summers was among a group of economists who reconstructed past consumer price index readings to account for modern-day spending patterns, particularly in housing.
According to the research paper by economists Marijn A. Bolhuis, Judd N. L. Cramer, and Summers, after adjustments, core inflation in June 1980 was calculated to be 9.1%, compared to a reported peak of 13.6 percent.
The statistics suggested to the study's authors that the Federal Reserve's goal of restoring price gains to their aim is comparable to that of then-Chairman Paul Volcker.
Bloomberg reports that the paper proposed the severe monetary tightening undertaken by Volcker in the early 1980s reduced core inflation by five percentage points, not the stated 11 percentage points. As a result, the Fed's current mission is closer to Volcker's - which involved a severe recession than originally anticipated.
The core CPI increased by 6.2 percent in April. The Fed's target inflation rate is 2%, but it's related to a different price index that averages somewhat less than the CPI. The May core CPI statistic, which is due Friday from the Bureau of Labor Statistics, is expected to be 5.9%, according to economists.
"To return to 2% core CPI inflation today will thus require nearly the same amount of disinflation as achieved under Chairman Volcker," the researchers stated in the paper.
Concerning Findings
The findings from the research, published by the National Bureau of Economic Research, might be concerning for Fed Chair Jerome Powell and his colleagues, who are trying to lower inflation without triggering a surge in unemployment like Volcker did.
The study's findings, which the National Bureau of Economic Research released, may worry Fed Chair Jerome Powell and his colleagues, who are attempting to cut inflation without causing a jump in unemployment, as Volcker did.
The federal funds rate rose around 10 percentage points as a result of Volcker's monetary tightening, peaking at 20% in the early 1980s. The current target range is 0.75 percent to 1%.
The economists stated that there were "important methodological changes in the Consumer Price Index (CPI) over time," which "distort comparisons of inflation from different periods."
Biden's 'War' on Fossil Fuels Drive Inflation
Amid the continued price surges in the country, former Trump Deputy National Security Adviser K.T. McFarland criticized US President Joe Biden for his "war" on fossil fuels that are causing inflation.
"It doesn't send the right message. It tells them to go ahead and take advantage of us. But it also isn't going to solve inflation, McFarland said in a "Varney & Co." interview, per Fox Business.
"The only thing that's going to really take a dent out of inflation is if President Biden lifts or pauses or halts his war against American fossil fuels. That's what's driving inflation," he added.
He pointed out that petroleum is used in the production of most products; hence the Biden administration must "stop" the war on fossil fuels to "fix inflation" as soon as possible. But McFarland believes Biden's administration "won't do it."
Unforeseen major shocks, such as Russia's invasion of Ukraine and China's recent COVID-19 lockdowns, have exacerbated supply constraints, pushing up oil and goods prices in unexpected ways, according to the White House. The San Francisco Federal Reserve Bank noted the "extraordinary" financial aid contributed around 3 percentage points to inflation by the fourth quarter of 2021, per Reuters.
The gap between the robustness of the US economy's recovery from coronavirus shutdowns, with a healthy labor market and record firm profits, and Biden's low poll numbers is causing frustration in the White House.