This isn’t your father’s 7% inflation rate

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Consumer price inflation in December, 7%, was at its highest level in the summer of 1982. It is almost the same in all the two periods.

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Today the inflation rate is increasing. At that time, it was falling. It peaked at 14.8% in 1980, while Jimmy Carter was still president and the Iranian Revolution pushed up oil prices. Core inflation reached 13.6% that year.

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Upon becoming chairman of the Federal Reserve in 1979, Paul Volcker set out to quell inflation with tough monetary policy. In combination with credit controls, that effort pushed the US into a brief recession in 1980. Then, when the Fed’s benchmark interest rate reached 19% in 1981, a very deep recession began. By the summer of 1982, both inflation and interest rates were falling rapidly. That would typically come after four decades of low-single-digit inflation.

“We have had dramatic success in reducing inflation,” a Fed official said in August. But Mr Volcker faced other problems: his high interest rates had pushed Mexico into default, sparked the Latin American debt crisis, and unemployment would climb to a post-World War II high of 10.8% that fell. Will go

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A full version of this report can be found at WSJ.com

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