While the rapid rise in consumer prices has sparked fears that the U.S. economy may enter a period of turmoil, it is unlikely to reach 1970 levels, a concluding economic report shows.
The current state of the U.S. economy has created some fears that prices could rise sharply and uncontrollably as unemployment continues to rise, according to report written by the Heritage Foundation Center for Data Analysis Director Norbert Michel. But an analysis of pride and employment data suggests Americans shouldn’t overdo it.
“The rise in the consumer price index and weak job growth, have given rise to fears in the style of 1970 stagflation, an economy that exhibits both high unemployment and inflation,” Michael wrote in the report. “It certainly shows that the risk of even higher inflation has arrived, and the fact that the economy has not yet fully emerged from the pandemic has added to the skepticism.”
“Even if the situation could change quickly, the current data does not indicate a return to the 1970s when price increases were high,” Michel said.
The Consumer Price Index show prices rose more between May 2020 and April than in any other 12 -month period since 2008. At the same time, the price index of Personal Expenditure on Personal Consumption, the chosen measure of inflation in Federal Reserve, taken largest 12 -month jump since 1992.
However, inflationary measures should rise even higher and for a higher economy to come anywhere near the inflation crisis of 1970, according to Michel. In the late 1970s and early 1980s, inflation spiked almost 15%, above current levels, as a result of energy prices, unemployment and an oversupply of money.
Michel recommended Congress rule on spending habits to curb potential out-of-control inflation. Economists such as former Secretary of the Treasury Larry Summers recently warned that large government spending packages could trigger one-time inflationary pressures.
“Congress and should reduce regulations that make products more expensive, fix structural government spending problems, and ensure that the Federal Reserve normalizes monetary policy,” Michel wrote.
“Elected officials need to curb rising U.S. debt and rising spending on entitlement,” he said. “The risk of a financial crisis and even higher inflation is heightened by the continued rise in debt and deficits.”