Inflation, as measured by the consumer price index (CPI), topped 9% for June and shows no signs of slowing down. However, as staggering as the 9.1% reading is, it’s important to realize that today’s 9% inflation rate doesn’t totally line up with the numbers reported in the 1970s and early 1980s.
In reality, inflation may be running hotter than what the headline number suggest, although it depends on your source due to the widespread debate over the monthly inflation readings.
What The Current Inflation Report Says
The U.S. Bureau of Labor Statistics said on Wednesday that consumers paid significantly more for a standard basket of goods in June as inflation soared while the economy slowed. The CPI measures everyday goods and services. At 9.1%, it beat the consensus estimate of 8.8% from Dow Jones.
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Excluding food and energy prices, the core CPI number was 5.9%, slightly ahead of the 5.7% that had been expected. Prices jumped 1.3% month over month, while core CPI rose 0.7% since May, compared to the estimates of 1.1% and 0.5%, respectively.
These numbers run against the consensus, which has been that inflation is peaking. Energy prices soared 7.5% month over month and 41.6% year over year. The food index was up 1%, while shelter costs rose 0.6% for the month and 5.6% for the year. Gas prices accounted for a significant chunk of the increase in inflation, rising 11.2% month over month and almost 60% year over year. Electricity costs were up 1.7% and 13.7%, respectively.
How Inflation Readings Have Changed
Many headlines continue to tout the declaration that inflation remains at 40-year highs. However, the situation could be far worse than what the BLS is reporting. The inflation calculation was changed in 1983, switching from tracking mortgages and other housing costs to tracking a measure referred to as "owners' equivalent rent."
Regardless of the debate over the inflation reading, there are other similarities between the so-called "Great Inflation" 40 years ago and today's episode. The Great Inflation lasted almost 20 years from 1965 to 1982, and one factor in the 1980s was soaring oil prices — something we're dealing with today as the world looks for non-Russian sources of oil.
Vox looked back at the Great Inflation, noting that today's 9.1% CPI reading is the highest level since November 1981. At that time, gas prices were through the roof, along with mortgage rates, which kept many middle-class families from buying homes. However, the job market was weak, and unemployment was in excess of 7%, a key difference from today's robust jobs market.
Vox credited the end of the Great Inflation to Paul Volcker, who it said had "engineered two massive, but brief, recessions, to slash spending and force inflation down." While current Federal Reserve Chairman Jerome Powell isn't trying to engineer a recession, he warned in recent commentary that one could result from their efforts.
This week, Bank of America analysts warned that a severe recession is needed to cool the runaway inflation. Meanwhile, bonds flashed a recession signal earlier this month, and an inverted yield curve suggests one is almost certainly on the way.
