Economy

Is the Inflation Experience of 2021-23 Like that of Post-Great-Influenza (1918-19)?

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Reader Steven Kopits, commenting on inflation now vs. Korean war post:

Not even remotely comparable. The comparison would be the post-1918, Spanish flu, period. A shut-down, supply-constrained economy with significant inflation; a sharp, deflationary correction; followed by a near decade-long economic boom.

If we’re talking suppressions, that’s the model to use.

Since Mr. Kopits did not provide any data of any sort to support his conjecture, I decided to look up to see what inflation behavior looked like back then (101 years ago).

Figure 1: Six month annualized CPI inflation now (blue), and 101 years ago (tan). Source: BLS, and NBER MacroHistory Database via FRED, and author’s calculations.

I’ve matched up the minima in inflation to make the series correspond as much as possible. The year-on-year picture looks even less promising for the thesis forwarded by Mr. Kopits.

Figure 2: Instantaneous CPI inflation now (blue), and 101 years, 2 months ago (tan). Instantaneous inflation calculation per Eeckhout (2023), T=12, a=4. Source: BLS, and NBER MacroHistory Database via FRED, and author’s calculations.

So, not sure the inflation experiences match well. After all, inflation had surged with entry into WW I, and didn’t go negative by the 12 month or 6 month inflation rates, and barely hit negative for one month using instantaneous inflation. In fact, by October 1919, y/y inflation was 13%.

As teaching is about to commence again, I restate my admonition. The data will set you free (in this case, from saying stupid things).

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