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1977 vs. 1981: The Ghosts of Inflation Past

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(National Review) Buckle up: Inflation is at the beginning of a roaring comeback.

Inflation has returned. The question is for how long. Some see the rise in consumer prices as — to use a popular word — “transitory” blips poised to pass as pandemic-related quirks in the economy fade. Others perceive inflation as more likely to persist. Only time will tell who is correct. For now, though, history should give prophets of inflation’s ephemerality more pause than prophets of its persistence.

The chart above puts 2021’s year-to-date 4.1 percent increase in consumer prices in historical perspective. It shows the year-to-date (i.e., since December of the prior year) percent change in the Consumer Price Index that occurred by July — now the most recent month with official Consumer Price Index data, in each year between 1948 and 2021. By this measure, inflation is now off to a start at a pace unseen in 40 years. The last time the Consumer Price Index was more than 4 percent higher in July than in the prior December was in 1981. Before that, the last time year-to-date consumer prices had risen this much by July was in 1977. The policies that stir the halls of the White House and the Federal Reserve today, however, are ghosts of 1977 rather than 1981. And if we’re more in 1977 than in 1981, buckle up: Inflation is at the beginning of a roaring comeback.

America’s macroeconomic policy of the early 1980s could scarcely be more different from what it is today. Nineteen eighty-one was the year that Ronald Reagan, having campaigned on a pledge to quell inflation and boost growth, moved into the White House. His “supply side” agenda of tax reform and deregulation went on to successfully contribute to the taming of inflation. President Biden, by contrast, campaigned on higher taxes and more regulation. And he seems intent on following through.

On the monetary side, 1981 was also the year that U.S. Federal Reserve chairman Paul Volcker raised the Fed’s main policy interest rate to an excruciating 19.1 percent — the highest

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