A Look Back at Famous Inflationary Periods Throughout History
Talk of inflation has dominated the news cycle for many months, and for good reason — especially domestically. Inflation is higher than it has been in recent memory and just hit a 40-year high of 8.5%, as GOBankingRates previously reported.
However, even though inflation is skyrocketing compared to the modest inflation with which Americans have grown accustomed, one question remains: How does this period of inflation compare to those of the past?
If inflation continues to rise, it could rival these famous inflationary periods throughout history. But as bad as inflation seems today, we aren’t there yet. Indeed, several periods of inflation have been worse. With the fed starting to inch up interest rates, we can hope for a reprieve — and a chance to avoid the worst possible effects of an unstable economy.
1770s: Revolutionary War
The American Revolutionary War began in 1775 and lasted until 1783. In this early period in America’s history, it lacked many of the systems it has in place today to keep things running smoothly. In fact, the Continental Congress couldn’t tax its citizens in order to fund the war. As a result, it relied on printing money to fund the war, and that led to hyperinflation. In 1778, inflation peaked at nearly 30%.
1917: WWI Era
World War I was a costly war for the United States; the country spent $20 billion on the war, which in 2008 dollars was more than $250 billion. Although the U.S. was able to tax its citizens by this time, it nevertheless funded about 20% of that effort by printing money. Inflation reached nearly 20% in 1917, the highest rate since the introduction of the Consumer Price Index (CPI). Inflation remained high until the depression of 1920-1921 when there was extreme deflation.
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Woodrow Wilson was the president at the time. To his credit, he passed the Federal Reserve Act of 1913, creating a central bank in the U.S. That followed a financial crisis in 1907, and at the time, the U.S. was the only major financial power with a central bank.
1940s: WWII Era
The U.S. entered World War II after the attack on Pearl Harbor in December 1941, two years after the war began. Franklin D. Roosevelt was president at the time and he declared war on Japan as a result of the attack.
World War I was big, but World War II was bigger. Much bigger. In fact, the total military and civilian casualties from WWII are estimated to be about 60 million. However, WWII was not just the deadliest war in U.S. history — it was also the most expensive.
The U.S. spent $296 billion on World War II, which is over $4 trillion when adjusted for inflation. That spending made up more than 35% of GDP at the time. Keep in mind that the U.S. entered WWII two years after its start, meaning all that spending was done in less than four years.
America’s massive spending on the war resulted in a period of high inflation from late 1941 until the summer of 1943. Inflation reached 10% in November 1941 and 11% in January 1942. Inflation during this period peaked in May 1942, when it soared past 13%. Inflation began to cool in the spring of 1943, dropping below 8% in May, then to around 6% by July of 1943.
A lot was going on in the 1970s: an oil embargo, Watergate, and the tail end of the Vietnam War. While some or all of these events are blamed for the economic woes of the 1970s, the real cause is much more logical. The true culprit? Monetary policy. This decade saw a period of stagflation, or a mix of both high inflation and employment coupled with a struggling economy.
President Nixon abandoned the gold standard on August 15, 1971; this move devalued the dollar and drove up inflation. On the very same day, Nixon announced wage and price controls, which he hoped would tamp down the cost of living and create jobs. The latter move was done as the 1972 presidential election heated up and Nixon hoped to win over voters.
Instead, inflation crept up throughout 1973 and 1974, and by December 1974 it was in excess of 12%. Meanwhile, unemployment rose and exceeded 8% by the end of 1974.
Early 1980s: The Great Inflation
The Great Inflation was a period that included the 1970s — in fact, it began in 1965. However, it wasn’t until 1974 that inflation during this period spiraled out of control. By 1980, inflation reached some of its highest levels in the 20th century.
Jimmy Carter was inaugurated in 1977 and inherited inflation that was slightly high, though not out of control — it was just above 5% in January 1977. Carter’s moves to control rising inflation included the installation of Alfred E. Kahn as Chairman of the Council on Wage and Price Stability (COCWPS). However, issues such as the doubling of oil prices between 1979 and 1980 led to rapidly rising inflation.
In January 1980, inflation was just under 14%. The next month, inflation exceeded 14%, and it stayed there until July of 1980. Although it dropped by about one percent in July 1980, inflation stayed firmly in double-digit territory throughout 1980 and much of 1981.
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