University:
Baltimore City Community College
Course:
ECO 201 | The American Economy I: Macroeconomic Theory
Academic year:

2024
Views:

431

Pages:

2
Author:

Danny A.

A History of the Consumer Price Level and Inflation The graph in Box 1 shows fluctuations in the consumer price index from 1913 to 1990. The base period is 1982-1984. As you can see in the graph, consumer prices rose sharply during World War I. Immediately after the war there was a period of deflation followed by price stability during the 1920s. Consumer prices plummeted, however, during the Great Depression of the 1930s. Prices began to increase again in 1933 but at a very slow rate. After World War II began, the price level shot up again. There was a mild deflation of the price level in 1948. Since 1948 consumer prices have risen. The rate of increase was greatest in the 1970s. During the 1980s prices continued to rise but at a much slower rate than during the 1970s. The graph in Box 2 shows the percentage change in the consumer price index quarterly from 1950 to 1990. As you can see, the pattern of inflation measured by the annual percentage change in the CPI has been quite erratic since 1950. After a sharp increase in the inflation rate in the early 1950s during the Korean War, the price level was relatively stable, with inflation seldom exceeding 5 percent per year. There was even a brief period of deflation. However, the 1970s was a period of high and erratic inflation. The average annual rate of inflation ranged between 3.3 percent and 11.3 percent. In 1980 inflation was roaring at an average annual rate of 13.5 percent. From 1983 to 1989 inflation averaged 3.64 percent per year based on year-to-year percentage changes in the CPI. In fact, mainly because of sharp drops in the prices of gasoline and other energy-related products, there was even deflation of the price level in some months during 1986. Based on the change in the CPl over the entire year, the rate of inflation was 1.9 percent in 1986. The table in Box 3 shows the average annual rate of inflation for consumer prices during five-year periods from 1960 to 1989. As you can see, inflation was quite low in the early 1960s when it averaged 1.26 percent per year. It peaked in 1975 to 1980 when it averaged 8 percent per year. Between 1980 and 1985 inflation averaged a bit less than 6 percent per year, and between 1985 and 1989 inflation averaged 3.6 percent per year.