The first graph in this paper shows that 8% inflation is rarely benign or transitory. It takes serious policy errors—in the case of 2021-23 inflation, bipartisan errors—to trigger inflation of this magnitude. Those policy errors are unlikely to be reversed until our central bankers and political leaders have lost much credibility, and the populace no longer accepts the “bad luck” that the policy elite typically wants to blame.
The table on the next page tells the story. If we choose to view the 8% threshold as our key measure for serious inflation, we can see that there are 21 “resolved” episodes, meaning that the inflation receded below the ubiquitous 2% inflation target. Of these, three episodes were “cresting,” meaning that they never hit 10% inflation. Three more cresting episodes are still happening now and remain elevated; the US is one of these. There are three more “resolved” examples, in which inflation eventually returned to 2% or lower. Two of these involved “multiple peaks,” meaning they receded below 4% and rebounded above 8% before they finally settled down below 2%.
More typically, 8% inflation moves to higher levels, which we call “accelerating inflation.” Of the 21 resolved episodes of 8% or higher inflation, 18 went on to higher levels of 10% or more, four with multiple peaks (receding below 4% before rebounding above 8%). In the current inflationary surge, six of our fourteen countries went on to inflation levels above 10%, and have yet to settle down.