Ronald Reagan was President When Inflation was at this Level

It was June 1982, Ronald Reagan was serving his first term as president, and inflation was running at 7.1%, according to CPI data from the St. Louis Federal Reserve. At the time, inflation was quickly retreating.

Last week, the U.S. Bureau of Labor Statistics reported that the CPI, or the Consumer Price Index, rose 7.0% last year. It was the highest level since the summer of 1982.

Mostly, the culprits that lifted inflation last year remain in place.

• Higher oil and food prices,
• supply chain disruptions,
• easy money from the Federal Reserve,
• heavy fiscal stimulus that lifted demand at a time of reduced supply of some goods,
• and a pandemic that distorted demand, favoring goods over services.

If we dig look below the surface, durable goods (such as autos, home appliances) rose 16.8% last year, nondurable goods (goods consumed over a shorter period) rose 10.2%, and services were up 4.0%, according to the U.S. BLS.

Wages are now rising at a faster pace, which could force firms to pass along higher costs, exacerbating pricing pressures.

Despite plentiful jobs and the growing economy, Gallup said last month that its Economic Confidence Index fell to -33, the lowest since April 2020 when it was at a pandemic low. Rising inflation is affecting the national mood.

Fed Chief Powell has gotten the message. In his testimony before the Senate Banking Committee last week, Powell said, “If we have to raise interest rates more over time, we will. We will use our tools to get inflation back.”  

He didn’t provide specifics or a timeline, but central bankers are already preparing investors. Several Fed officials said last week they are considering a March rate hike, and some said at least four rate increases may occur this year. That’s a far cry from a year ago when the Fed’s own projections reflected no rate increases through 2023.