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Comparing Past and Present Inflation

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  • Marijn A. Bolhuis
  • Judd N. L. Cramer
  • Lawrence H. Summers

Abstract

There have been important methodological changes in the Consumer Price Index (CPI) over time. These distort comparisons of inflation from different periods, which have become more prevalent as inflation has risen to 40-year highs. 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 post-war period. Using these series, we find that current inflation levels are much closer to past inflation peaks than the official series would suggest. In particular, the rate of core CPI disinflation caused by Volcker-era policies is significantly lower when measured using today’s 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 inflation today will thus require nearly the same amount of disinflation as achieved under Chairman Volcker.

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  • Marijn A. Bolhuis & Judd N. L. Cramer & Lawrence H. Summers, 2022. "Comparing Past and Present Inflation," NBER Working Papers 30116, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30116
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    1. Marijn A Bolhuis & Judd N L Cramer & Lawrence H Summers, 2022. "The Coming Rise in Residential Inflation [The repeat rent index]," Review of Finance, European Finance Association, vol. 26(5), pages 1051-1072.
    2. Alexander Doser & Ricardo Nunes & Nikhil Rao & Viacheslav Sheremirov, 2023. "Inflation expectations and nonlinearities in the Phillips curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 453-471, June.
    3. Ding, Shusheng & Zheng, Dandan & Cui, Tianxiang & Du, Min, 2023. "The oil price-inflation nexus: The exchange rate pass- through effect," Energy Economics, Elsevier, vol. 125(C).
    4. Wildauer, Rafael & Kohler, Karsten & Aboobaker, Adam & Guschanski, Alexander, 2023. "Energy price shocks, conflict inflation, and income distribution in a three-sector model," Energy Economics, Elsevier, vol. 127(PB).
    5. Jose Maria Barrero & Nicholas Bloom & Steven J. Davis & Brent Meyer & Emil Mihaylov, 2022. "The Shift to Remote Work Lessens Wage-Growth Pressures," FRB Atlanta Working Paper 2022-7, Federal Reserve Bank of Atlanta.
    6. Laurence M. Ball & Daniel Leigh & Prachi Mishra, 2022. "Understanding U.S. Inflation During the COVID Era," NBER Working Papers 30613, National Bureau of Economic Research, Inc.
    7. Pianta, Mario, 2023. "Inflation and distributive conflicts," MPRA Paper 119345, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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