Some analysts are saying that the federal data on inflation actually underrepresents how bad the situation really is by a large margin. 

From The Federalist. Even though inflation has reached 40-year highs, topping out at 8.6 percent for the month of May, some took minor solace in the fact that prices haven’t increased at the rates seen during the Jimmy Carter era….

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Former Treasury Secretary and longtime Democrat Larry Summers recently co-authored an important paper analyzing long-term inflation trends and statistics. The paper demonstrates that changes to the way the federal government measures inflation via the Consumer Price Index since the Carter era understate the current scope of the problem—and the challenge the Federal Reserve faces in getting inflation under control today.

Measuring Housing Costs

Two changes to the inflation measure—one a one-time methodological change, and the other a long-running trend—explain much of the apparent difference in CPI rates between the late 1970s and today. The first comes from a 1983 move by the Bureau of Labor Statistics to remove homeownership costs from the CPI measurement and replace them with a metric called owners’ equivalent rent.

The new metric quantifies what homeowners would receive for their homes on the rental market. As one might expect, the metric closely tracks the rental market. (Rent is a separate component of the CPI.) Most importantly, shifting from homeownership costs to owners’ equivalent rent to calculate homeownership costs eliminated the direct effect of mortgage rates—and therefore interest rate policy—on calculating the rate of inflation….

Longer-Term Trends

Summers and company also note that, compared to past decades, a smaller portion of the Consumer Price Index consists of goods with volatile prices. This suggests that combating inflation will require a longer and more sustained effort….

Worse Dangers Ahead

Summers famously predicted last February that inflation would accelerate if Democrats rammed through their $1.9 trillion “stimulus” legislation. Sure enough, it did. His newest analysis therefore bears watching, as does one ominous conclusion: that bringing inflation down to the Fed’s desired 2 percent level “will…require nearly the same amount of disinflation as achieved under [Federal Reserve] Chairman [Paul] Volcker.”

Volcker, who served from 1979 to 1987, eventually tamed inflation—but not before having to raise interest rates as high as 20 percent, sparking the deep recession of the early 1980s….

How are you praying for our country as is struggles with inflation? Share your thoughts and prayers below.

(Excerpt from The Federalist. Photo Credit: Canva)