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FACTS ON POLICY: Historical Inflation Rates
December 5, 2006
Since 1990, annual inflation has hovered at historically low levels—averaging under 3 percent per year.
The inflation rate is the percentage change in the price for a composite “market basket” of goods over time. The common measure to track this is the consumer price index (CPI). Although there are many ways to measure CPI—excluding energy prices, excluding energy and food prices, urban versus rural household, and so on—the most commonly used by the national media sources is the CPI for all goods for all urban consumers.
For most of the twentieth century (1914–2000), inflation has averaged 3.5 percent.
It took six years, from 1914 to 1920, for the CPI to double. The longest doubling period was the fifty-one years between 1920 and 1971. Most recently, it took twenty-three years, from 1983 to 2006, for the CPI to double.
Inflation rates were most volatile when William P.G. Harding was chairman of the Federal Reserve Board, from 1916 to 1922. During that time, inflation hit both its highest and its lowest levels of the twentieth century: 18.0 percent in 1918 and -10.5 percent in 1921. In contrast, the past twenty or so years, primarily with Alan Greenspan as chairman, have been relatively stable, with inflation ranging from a high of 5.4 percent to a low of 1.6 percent.
Inflation tends to be high during postwar periods. In the three-year period after World War I, World War II, and the Vietnam War, inflation averaged 16.1 percent, 10.3 percent, and 7.1 percent, respectively. The exception is the Korean War, after which inflation hovered at around 0.3 percent.
Figure 1
Inflation Rates, 1914-2005
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