Former Treasury Secretary and National Economic Council director Lawrence Summers warned on Tuesday that the United States still has a “serious inflation problem.”
The Consumer Price Index (CPI) rose 8.3% between August 2021 and August 2022, according to a report released on Tuesday by the Bureau of Labor Statistics. The reading marks a decline from the 8.5% year-over-year rate seen in July and the 9.1% year-over-year rate seen in June as gasoline prices continue to fall, although month-over-month prices for food, shelter, and medical services continued to tick upward.
Indeed, core inflation — the price level increase for all items except for food and energy — rose by 0.6% in August, marking a faster rate of increase than July and producing a 6.3% year-over-year rate. Analysts were expecting the measure to rise 0.3%.
“Core inflation is higher this month than for the quarter, higher this quarter than last quarter, higher this half of the year than the previous one, and higher last year than the previous one,” Summers commented on social media.
Summers remarked that median inflation — an alternative metric of core inflation favored by those who once said inflation was “transitory” — rose to “its highest ever reading.” Indeed, median inflation rose from 6.3% in July 2022 to 6.7% in August 2022, according to data from the Federal Reserve Bank of Cleveland.
Among other officials, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen once argued that rising price levels were a temporary result of demand increases that followed widespread government lockdowns. Yellen admitted earlier this year, however, that she was incorrect about transitory inflation.
“I think I was wrong then about the path that inflation would take,” Yellen said during an interview with CNN. “As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy… But we recognize that now.”
Despite the poor inflation news, President Joe Biden claimed victory on Tuesday in the “essentially flat” headline figures. “It will take more time and resolve to bring inflation down, which is why we passed the Inflation Reduction Act to lower the cost of healthcare, prescription drugs and energy,” he said in a statement. “And my economic plan is showing that, as we bring prices down, we are creating good paying jobs and bringing manufacturing back to America.”
Meanwhile, Summers said that the odds of inflation falling to 2% — the official long-term target of the Federal Reserve — without unemployment spiking above 4.5% is “highly implausible,” while even interest rates above 4% would be insufficient to restore normal price level increases.
The unemployment rate increased for the first time in months to 3.7% in August 2022, even as more Americans returned to work, according to data from the Bureau of Labor Statistics. As inflation remains elevated, Powell and other policymakers still intend to bring inflation to historical levels.
“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell recently said at the central bank’s annual symposium in Jackson Hole, Wyoming. “Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. The burdens of high inflation fall heaviest on those who are least able to bear them.”