Working Paper: NBER ID: w30116
Authors: 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.
Keywords: No keywords provided
JEL Codes: C43; E21; E31; E37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| methodological changes in CPI (C43) | measured rate of disinflation (E31) |
| treatment of housing (R28) | measured rate of disinflation (E31) |
| current inflation levels (E31) | historical disinflationary policies (E65) |
| composition of CPI (C43) | observed inflation rates (E31) |
| methodological changes in CPI (C43) | historical inflation comparisons (E31) |