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Comparing Past and Present Inflation

Larry Summers National Bureau of Economic Research

Date Posted:: June 8, 2022
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Adjusting for changes in how housing inflation is measured reveals that achieving target inflation today requires disinflation similar to the Volcker era.

Adjusting for changes in how housing inflation is measured reveals that achieving target inflation today requires disinflation similar to the Volcker era. The current core CPI inflation rate is closer to past peaks than official data suggests, with the peak in June 1980 falling from 13.6% to 9.1% when using the Owner's Equivalent Rent (OER) method. The weight of OER in core CPI has increased from 14.5% in 1983 to 30.6% in 2022, making housing a significant barrier to rapid disinflation. To return to 2% core CPI, a disinflation of nearly 5 percentage points is needed, comparable to the Volcker-era's adjusted decline. This analysis challenges optimistic forecasts of an inexpensive disinflation, highlighting the substantial effort required to achieve historical standards.

This paper highlights that the way that housing inflation was measured in the CPI made previous inflationary cycles look more volatile and responsive to Fed policy. We draw two sets of conclusions. First, our observations imply that the current inflation regime is closer to that of the late 1970s than it may at first appear. In particular, the rate of CPI disinflation engineered in the Volcker-era is significantly less when measured using today’s treatment of housing. In order to return to 2 percent core CPI today, we need nearly the same 5 percentage points of disinflation that Volcker achieved. In its pre-1983 form, shelter inflation would decline mechanically as interest rate increases subsided, adding fuel to rapid disinflations. Not only is the current housing component of CPI unlikely to decline swiftly, but recent research indicates that housing inflation is likely to continue growing in the coming monthsWith private sector rent growth currently still at 16 percent, residential inflation is likely to move towards 7 percent by the end of 2022, contributing almost 3 percentage points to core CPI inflation. Compared to previous inflationary cycles, housing will thus serve as a significant hindrance to rapid disinflation whereas it used to move the official series substantially lower.Second, our estimates suggest that past inflation cycles were more volatile than today’s due to the greater weight of transitory goods components in past indices. With current procedures, the inflation taken out of the system in 1950s and 1970s looks significantly more modest. Overall, some optimistic interpretations which underplay the magnitude of the required disinflation to return to trend inflation today are called into question by the analysis in this paper. Our estimates suggest that the current inflation rate is closer to the peak of other cycles than the official CPI data suggest. Figure 3 shows that the peak of the Volcker-era inflation (March 1980), currently understood to have been at 14.8 percent, is only 11.4 percent when adjusted for the switch from homeownership costs to OER. The growth in core CPI at its peak in June 1980 falls from 13.6 percent to 9.1 percent when measured using the OER method as seen in Figure 4. The large differences between the official and adjusted series reflect both the substantial weight of OER in the index, especially in core CPI, and the lower peaks of estimated OER relative to homeownership costs. From a low of 14.5 percent weight in 1983, as Americans have shifted more of their consumption towards housing, OER has risen to represent 24.3 percent of overall CPI and 30.6 percent of core CPI in 2022. While past inflation peaks are lower using the consistent methodology, the average inflation rate pre-1983 would also have been lower. Our estimates show that the mean headline inflation rate between 1949 and 1983 is 0.4 percentage points lower when accounting for the shift to OEROne thing that is not called into question is the great work performed by the people of the Bureau of Labor Statistics; our corrections do not at all denigrate current processes, they are just a tool for better intertemporal contextualization. Most importantly, prior to 1983 measurement of shelter inflation was mechanically responsive to Federal Reserve interest rate policy via mortgage rates. This method made pre-1983 peak CPI inflation measures, especially during the Volcker-era, artificially high at the beginning of the tightening cycle, and declines look artificially fast. Using publicly available Bureau of Labor Statistics (BLS) data for the post-war period, we develop new estimates of CPI headline and core inflation that can be better compared across time. The full series is available on our website athttp://larrysummers.com/category/inflation/. Our analysis reveals that current inflation, especially core inflation, is considerably closer to previous peaks than in the official series. Official core CPI inflation peaked at 13.6 percent in June 1980, whereas we estimate that core inflation was 9.1 percent in that same month when adjusting for the treatment of shelter inflation. Our estimates also suggest that the local trough of core CPI inflation in 1983 was considerably higher than originally reported. Overall, these estimates imply that the rate of core CPI disinflation caused by Volcker-era policies is significantly lower when measured using the current treatment of housing: only 5 percentage points of decline instead of 11 percentage points in the official CPI statistics. To return to 2 percent core CPI today, we thus need disinflation of a similar magnitude as Chairman Volcker achieved. We show that due to the greater weight of transitory goods components —especially food and apparel— in the index of the 1940s and 1950s, past inflation spikes were higher and more short-lived than today’s. When using current weights, we estimate that the peak of core CPI inflation in June 1951 falls from 7.2 to 5 percent, and the peak of headline CPI inflation falls from 9.4 to just 3.3 percent. These two points serve as a caution against overly optimistic forecasts of an inexpensive disinflation in the current cycle —the disinflation that needs to be achieved now is large by historical standards.

Methodology

“…To better contextualize the current run-up in inflation, this paper constructs new historical series for CPI headline and core inflation that are more consistent with current practices and expenditure shares for the entirety of the post-war period. Using publicly available Bureau of Labor Statistics (BLS) data for the post-war period, we develop new estimates of CPI headline and core inflation that can be better compared across time. The full series is available on our website athttp://larrysummers.com/category/inflation/. Our analysis reveals that current inflation, especially core inflation, is considerably closer to previous peaks than in the official series. Official core CPI inflation peaked at 13.6 percent in June 1980, whereas we estimate that core inflation was 9.1 percent in that same month when adjusting for the treatment of shelter inflation….”

Implication

“…Our estimates also suggest that the local trough of core CPI inflation in 1983 was considerably higher than originally reported. Overall, these estimates imply that the rate of core CPI disinflation caused by Volcker-era policies is significantly lower when measured using the current treatment of housing: only 5 percentage points of decline instead of 11 percentage points in the official CPI statistics. To return to 2 percent core CPI today, we thus need disinflation of a similar magnitude as Chairman Volcker achieved….”

Other Comparisons

“…Similar issues affect conclusions drawn from comparisons of current inflation with other periods of elevated inflation. Recent work suggests that the years following World War II have strong similarities to the current inflation environment (e.g., Rouse et al., 2021; DeLong, 2022). We show that due to the greater weight of transitory goods components —especially food and apparel— in the index of the 1940s and 1950s, past inflation spikes were higher and more short-lived than today’s. When using current weights, we estimate that the peak of core CPI inflation in June 1951 falls from 7.2 to 5 percent, and the peak of headline CPI inflation falls from 9.4 to just 3.3 percent. These two points serve as a caution against overly optimistic forecasts of an inexpensive disinflation in the current cycle —the disinflation that needs to be achieved now is large by historical standards…”

The Evidence

“…Our estimates suggest that the current inflation rate is closer to the peak of other cycles than the official CPI data suggest. Figure 3 shows that the peak of the Volcker-era inflation (March 1980), currently understood to have been at 14.8 percent, is only 11.4 percent when adjusted for the switch from homeownership costs to OER. The growth in core CPI at its peak in June 1980 falls from 13.6 percent to 9.1 percent when measured using the OER method as seen in Figure 4. The large differences between the official and adjusted series reflect both the substantial weight of OER in the index, especially in core CPI, and the lower peaks of estimated OER relative to homeownership costs. From a low of 14.5 percent weight in 1983, as Americans have shifted more of their consumption towards housing, OER has risen to represent 24.3 percent of overall CPI and 30.6 percent of core CPI in 2022. While past inflation peaks are lower using the consistent methodology, the average inflation rate pre-1983 would also have been lower. Our estimates show that the mean headline inflation rate between 1949 and 1983 is 0.4 percentage points lower when accounting for the shift to OER. More broadly speaking, past inflationary cycles would have been less volatile using the consistent methodology that uses OER. The pace of reflation during the cycle upswings, and the pace of disinflation during the cycle downswings are lower under today’s methodology, as summarized in Table 1.These differences imply that the responsiveness of the CPI to monetary policy was considerably lower during the 1960s and 1970s than the official CPI statistics suggest. We stress that any consequences of the difference in measurement are larger for core CPI than for headline CPI, due to the considerably larger weight of OER in core CPI..”
Comparing Past and Present Inflation: Extended Excerpt Image 1

Marijn Bolhuis, Judd Cramer and Lawrence Summers, "Comparing Past and Present Inflation," National Bureau Of Economic Research, June 2022, https://www.nber.org/papers/w30116

Choking Iran's Economy Is the Least Bad Way to End the War

Javier Blas Bloomberg

Date Posted:: August 20, 2026
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Inflation in Iran is running at at least ~69%, its highest annual rate in 70 years. The black market exchange value of a rial hit a record low of ~1.85mm rials to the dollar, relative to 50,000 per dollar five years ago.

[Iran's] economy is on track to suffer the biggest annual contraction since the nadir of the Iran-Iraq War in the mid-1980s. Inflation is running well above 50%, the highest annual rate since records start nearly 70 years ago. Worse, the cost of food and other necessities has already doubled from a year ago. Its currency, the rial, is worthless. In the black market, the exchange rate has collapsed to a record low of about 1.85 million rials to the dollar; five years ago, roughly 50,000 rials were enough to buy a greenback.

Takeaways by Macro Roundup^® AI

Iran’s inflation rate exceeds 50% annually — the highest in nearly 70 years of records — while food and essential goods costs have doubled year over year, severely compressing household purchasing power across the economy.
Iran’s GDP is on track for its steepest annual contraction since the mid-1980s Iran-Iraq War nadir, a deterioration that surpasses every recessionary episode across four intervening decades.

A Return To Monetarism?

Peter Ireland, Stephen Miran and Nouriel Roubini Hudson Bay Capital

Date Posted:: July 16, 2026
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Ireland, Miran, and Roubini compare the actual price level to the predictions of an equilibrium model relating prices to money supply. Predicted inflation hit a 60-year high in 2020–21, months before inflation surged and then crashed once the Fed hiked.

The graphs in Figure 3 show quite clearly how the surge in money growth starting in 2020 and continuing in 2021 put enormous upward pressure on inflation, to a degree unprecedented in the post-1967 sample period. And while the large and negative price gaps that followed in 2022 and 2023 are likewise indicative of strong disinflationary pressures applied through subsequent monetary tightening, one can’t see these graphs without asking: Had Federal Open Market Committee members been monitoring measures of money growth with the help of the P-star [price target based on monetary aggregates] model, might they have ended QE and raised interest rates sooner and more quickly, thereby avoiding at least some of the post-2020 inflation? Of course, massive fiscal expansion was another driver of the post-2020 surge in inflation, as suggested by fiscal theories of the price level. The model simply observes that regardless of its originating source, excessive money growth signals that inappropriate macroeconomic policies are fueling higher inflation. Fiscal expansions that expand money supply will be reflected in a P-star model.

Home Alone: Inflation And The New Fed Chair

Michael Cembalest J.P. Morgan

Date Posted:: May 27, 2026
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Cembalest notes labor market tightness, price pressures in the manufacturing sector and the implied output gap are “much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them.”

Inflation indicators the Fed watches include labor market tightness, price pressures in the manufacturing sector, supply chain tightness and the “output gap” which measures how far actual growth is above/below potential growth. [The two] charts plot these four variables at the time of prior Fed decisions to increase or cut policy rates; green dots indicate when the Fed cut, red dots indicate when the Fed tightened and yellow circles show today’s values. In other words: current values are much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them. That may be why the futures curve is now pricing in Fed hikes instead of the cuts that were priced in at the start of the year. Superwonky: averaging several different monetary rules of thumb (Taylor rules, inertial, alternative r*, forward-looking) yields a Fed Funds range of 4.00% - 4.85% compared to the current range of 3.50% - 3.75%.

Takeaways by Macro Roundup^® AI

Monetary policy rules average a 4.00–4.85% Fed Funds range vs. the current 3.50–3.75%, indicating tightening bias drives futures pricing toward.
Labor market tightness, manufacturing price pressures, supply chain constraints, and positive output gaps align with historical rate-increase conditions, leading markets.

US Consumer Sentiment Slides to Record Low on Price Concerns

María Paula Mijares Torres Bloomberg

Date Posted:: May 26, 2026
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The Michigan Consumer Sentiment Index hit a record low in May, falling ~10% month over month. Consumers foresee prices advancing 4.8% over the next year. Inflation and high gas prices have long been major causes of sentiment drops.

The University of Michigan’s final May sentiment index decreased 5 points to 44.8 from April. The gauge was weaker than all projections in a Bloomberg survey of economists as well as the preliminary reading of 48.2. Consumers expect prices to rise an annualized 3.9% over the next five to 10 years, up from 3.5% in April and the highest in seven months. They also saw costs advancing 4.8% over the next year.

Takeaways by Macro Roundup^® AI

Michigan consumer sentiment fell 5 pts to 44.8, undershooting all economist forecasts, driving heightened recession risk perceptions.
Five-to-10-year inflation expectations surged to 3.9% from 3.5% month-over-month, the highest in seven months, leading to eroded purchasing power confidence.
One-year price expectations of 4.8% vs. 3.9% long-term forecasts signal consumers expect near-term cost acceleration to outpace eventual moderation.

Where Did All the Affordable Cars Go?

Clifford Winston New York Times

Date Posted:: April 15, 2026
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In 2012, there were ~12 new cars available for around $25,000 in real terms in the US. Today, there are only 4 new cars available at that price point. Clifford Winston notes allowing Chinese imports would likely increase that number to 11.

The average transaction price for a new car now sits around $50,000. In December, it became just about impossible to find one for less than $20,000. For anyone on a budget, an aging car is a trap. Auto repair costs jumped 15% in the last year alone, driven by the complexity of modern sensors and labor shortages. An average trip to the mechanic now costs roughly $840. To fix the problem, policymakers must overturn what has been for decades the third rail in American politics. It is time to stop coddling Detroit automakers [and open] the American market to cars made in China and elsewhere. Chinese cars aren’t just cheaper than the American alternatives. They’re often better. Take BYD’s slightly more upscale Seal sedan. It’s similar to Tesla’s Model 3, introduced nine years ago. But the Seal costs roughly $20,000 less than the Model 3. The Seal’s premium model offers substantially more horsepower, and its battery not only lasts longer, it can also be 80% charged in just 37 minutes. The Seal isn’t just a budget alternative; it is a more advanced machine.

Takeaways by Macro Roundup^® AI

Average new car prices reached $50,000, up from sub-$20,000 availability a decade ago, driving affordability crisis for budget consumers.
Auto repair costs jumped 15% annually to $840 per visit, as sensor complexity and labor shortages result in escalating ownership.

Inflation Is Down, But Americans Still Feel an Affordability Squeeze

Mark Niquette, Jennah Haque and Jade Khatib Bloomberg

Date Posted:: February 19, 2026
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Is Important:: Important

The US price level has risen 26% since January 2020, leaving Americans’ average weekly real wages up only 3.7% over five years.

The average American’s weekly pay has risen 31% over the past six years. That’s faster than prices across that period, so Americans in the aggregate aren’t losing ground — but inflation wiped out most of their income gains. For low earners, who saw the fastest wage growth after the pandemic, the last year or so has been tougher and they’re now lagging behind. [Grocery] prices are up about 30% since January 2020, about in line with average wage growth. But Americans had gotten used to paying roughly the same at the supermarket each week in the pre-pandemic years. Lately, they’ve been forced to stomach a bigger bill with almost every visit. A double-punch has pushed homeownership out of reach for many Americans: First the pandemic-era surge in prices, and then a steep run-up in mortgage rates. A young married couple now needs 70% of their annual household income to afford the average down payment, according to Goldman Sachs economist Elsie Peng, up from 58% in 2019 and 45% in 2000. [Further], the average principal and interest payment has doubled since early 2020, according to the National Association of Realtors. Employee premiums for family health insurance have risen 23% in the past five years to almost $6,900 on average. And more than 20 million people who rely on Affordable Care Act plans face a hike in their premiums after Congress let Covid-era subsidies expire.

Adjusting for changes in how housing inflation is measured reveals that achieving target inflation today requires disinflation similar to the Volcker era.

Inflation in Iran is running at at least ~69%, its highest annual rate in 70 years. The black market exchange value of a rial hit a record low of ~1.85mm rials to the dollar, relative to 50,000 per dollar five years ago.

Is economic collapse the only path to ending the conflict?

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Ireland, Miran, and Roubini compare the actual price level to the predictions of an equilibrium model relating prices to money supply. Predicted inflation hit a 60-year high in 2020–21, months before inflation surged and then crashed once the Fed hiked.

Does excess money growth always predict inflation regardless of its source?

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Cembalest notes labor market tightness, price pressures in the manufacturing sector and the implied output gap are “much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them.”

Does current inflation warrant higher rates than the Fed currently plans?

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The Michigan Consumer Sentiment Index hit a record low in May, falling ~10% month over month. Consumers foresee prices advancing 4.8% over the next year. Inflation and high gas prices have long been major causes of sentiment drops.

Are rising price expectations undermining consumer confidence?

Takeaways by Macro Roundup® AI

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In 2012, there were ~12 new cars available for around $25,000 in real terms in the US. Today, there are only 4 new cars available at that price point. Clifford Winston notes allowing Chinese imports would likely increase that number to 11.

How Can Lower-Cost Foreign Vehicles Improve Car Affordability?

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The US price level has risen 26% since January 2020, leaving Americans’ average weekly real wages up only 3.7% over five years.

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