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During an interview aired on Friday’s edition of Bloomberg’s “Wall Street Week,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton, Larry Summers stated that “we’ve got a bit of a stagflationary problem developing where we have base inflation that’s well above target,” and you won’t get inflation back to the target level “without a meaningful slowdown in the economy.”
Summers said, “I’ve been pointing to the ECI number, because I think the labor market is the key to the inflation process because it only comes quarterly because it’s the best of the numbers for measuring wage inflation, because it includes benefits and adjusts for changes in the composition of the labor force. And that number was pretty strong. That number’s running at about 4.8% now, both on an annual basis and a quarterly basis. There’s not really evidence that it is decelerating. The revision for last quarter was a little bit upwards. And 4.8% labor cost inflation just does not go with 2% underlying inflation. So, I think we’ve got a bit of a stagflationary problem developing where we have base inflation that’s well above target, and as I’ve been saying for the last year-and-a-half, I don’t think that’s going to get back to target without a meaningful slowdown in the economy.”
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