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Comparing Past and Present Inflation

Larry Summers National Bureau of Economic Research

Date Posted:: June 8, 2022
Is Database:: Database

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.

Takeaways by Macro Roundup^® AI

Applying today's Owner's Equivalent Rent method to historical data lowers the June 1980 core CPI peak from 13.6% to 9.1%, placing the current inflation rate closer to past peaks than official data suggests.
Owner's Equivalent Rent's weight in core CPI rose from 14.5% in 1983 to 30.6% in 2022, making housing a significant barrier to rapid disinflation.
Returning core CPI to 2% requires disinflation of nearly 5 percentage points, comparable to the measurement-adjusted Volcker-era decline, which challenges forecasts of an inexpensive disinflation.

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

Demand-Driven Inflation

Domenico Giannone and Giorgio Primiceri Bookings Papers on Economic Activity

Date Posted:: October 1, 2026
Is Database:: Database

Giannone and Primiceri revisit the relative role of supply vs. demand shocks in generating the post-Covid inflation. Because aggregate demand curves estimated from pre-pandemic data are flat, supply shocks alone would not have generated large inflation in the absence of added demand stimulus.

Demand and supply curve slopes are estimated from pre-pandemic data using the essentially definitional restriction that supply shocks move prices and output in opposite directions along demand curves, while demand shocks move them together along supply curves; the plotted slopes represent Bayesian posterior medians rather than uniquely identified estimates. The estimated demand curves are relatively flat in both the US and euro area [Figure 7], reflecting the central banks’ strong pre-pandemic responses to inflation. With those slopes, adverse supply shifts cause large output losses but comparatively little inflation. [To successfully explain] the combination of inflation and output observed in 2022 therefore requires demand to shift outwards too. Strong demand, including unusually accommodative monetary policy [on top of strong fiscal expansion], cushioned the output losses while increasing inflation [Figure 7]. In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area. That combination is suggestive of unexpectedly strong demand, whereas an adverse supply surprise alone would raise inflation but lower output. [Figure 9].

Takeaways by Macro Roundup^® AI

Demand curves estimated from pre-pandemic US and euro-area data are relatively flat, reflecting central banks’ strong pre-pandemic responses to inflation, so adverse supply shifts produce large output losses but comparatively little inflation.
Explaining the 2022 combination of inflation and output requires an outward shift in demand, with strong demand — including unusually accommodative monetary policy atop fiscal expansion — cushioning output losses while raising inflation.
In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area, a combination suggestive of unexpectedly strong demand, since an adverse supply surprise alone would raise inflation but lower output.

Is The World Really Drowning In Debt?

Martin Wolf Financial Times

Date Posted:: September 30, 2026
Is Database:: Database

Wolf notes that the global debt-to-GDP ratio rose by less than 10pp btw 2018 and June 2026: after peaking at 337% in early 2021, it fell by 27pp by the end of 2023, as inflation boosted nominal GDP and eroded the value of existing debt.

The IIF shows that between 2018 and June 2026, the rise in the ratio of global debt to output was less than 10 percentage points. The story is striking: the ratio reached a post-Covid peak of 337% in early 2021, before falling by 27 percentage points by the end of 2023. What was this magical “debt-buster”? Good old-fashioned (and supposedly “unexpected”) inflation. This is — to put it mildly — not the first time inflation has wiped out debt. It was, to take one of countless examples, an important part of the UK’s elimination of its post-second-world-war debt. For countries able to print the money in which their debt is denominated, that is often what happens.

Takeaways by Macro Roundup^® AI

IIF data show the global debt-to-output ratio reached a post-Covid peak of 337% in early 2021 before falling by 27 percentage points by the end of 2023, with inflation identified as the force that eroded it.
Between 2018 and June 2026, the IIF shows the ratio of global debt to output rose by less than 10 percentage points.
Inflation has wiped out debt before, forming an important part of the UK’s elimination of its post-second-world-war debt, and often does so for countries able to print the currency in which their debt is denominated.

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

Javier Blas Bloomberg

Date Posted:: August 20, 2026
Is Database:: Database

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 economy is on track for its biggest annual contraction since the nadir of the Iran-Iraq War in the mid-1980s.
Iranian inflation is running well above 50%, the highest annual rate since records began nearly 70 years ago, with the cost of food and other necessities already double year-ago levels.
The rial has fallen to a record low of about 1.85 million to the dollar on the black market, compared with roughly 50,000 rials per dollar five years ago.

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.

Takeaways by Macro Roundup^® AI

The money growth surge beginning in 2020 and continuing into 2021 put upward pressure on inflation to a degree unprecedented in the post-1967 sample period, according to the graphs in Figure 3.
The large negative price gaps of 2022 and 2023 indicate strong disinflationary pressures from subsequent monetary tightening, raising the question of whether FOMC members using the P-star model would have ended quantitative easing and raised interest rates sooner and more quickly.
Massive fiscal expansion was another driver of the post-2020 inflation surge, as suggested by fiscal theories of the price level, and fiscal expansions that expand the money supply are reflected in a P-star model.

Home Alone: Inflation And The New Fed Chair

Michael Cembalest J.P. Morgan

Date Posted:: May 27, 2026
Is Database:: Database

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

Averaging several monetary policy rules — Taylor rules, inertial, alternative r*, and forward-looking — yields a Fed Funds range of 4.00%–4.85%, above the current 3.50%–3.75% range.
Labor market tightness, manufacturing price pressures, supply chain tightness, and the output gap sit much closer to conditions that historically prompted the Fed to raise policy rates than to cut them.
The futures curve is pricing in Fed hikes rather than the cuts priced in at the start of the year.

US Consumer Sentiment Slides to Record Low on Price Concerns

María Paula Mijares Torres Bloomberg

Date Posted:: May 26, 2026
Is Database:: Database

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

The University of Michigan's final May consumer sentiment index fell 5 points from April to 44.8, a record low and weaker than every forecast 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.
Consumers expect costs to advance 4.8% over the next year, according to the University of Michigan's final May survey.

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

Does consistent housing measurement make today's inflation comparable to past peaks?

Takeaways by Macro Roundup® AI

Giannone and Primiceri revisit the relative role of supply vs. demand shocks in generating the post-Covid inflation. Because aggregate demand curves estimated from pre-pandemic data are flat, supply shocks alone would not have generated large inflation in the absence of added demand stimulus.

Did outward demand shifts, not supply shocks alone, drive recent inflation?

Takeaways by Macro Roundup® AI

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Wolf notes that the global debt-to-GDP ratio rose by less than 10pp btw 2018 and June 2026: after peaking at 337% in early 2021, it fell by 27pp by the end of 2023, as inflation boosted nominal GDP and eroded the value of existing debt.

Does inflation reduce the global debt burden?

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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.

Is Iran's economy contracting at its fastest rate in decades?

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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.

Would tracking money growth have helped policymakers tighten sooner?

Takeaways by Macro Roundup® AI

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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.”

Do current inflation indicators point toward rate hikes rather than cuts?

Takeaways by Macro Roundup® AI

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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 price expectations pushing consumer sentiment to a record low?

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