Article
April 2014
One hundred years of price change: the Consumer Price Index and the American inflation experience
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A new war era and the return of price controls
The deflation of the late 1940s proved short lived. The economy showed signs of turning around in late 1949, and prices followed in early 1950. By mid-1950, the Korean conflict returned the economy to a semblance of a wartime status. Demand surged as consumers, mindful of World War II shortages, bought while they still could. Food prices rose nearly 10 percent over the last 8 months of 1950, and the housefurnishings index rose at a similar rate. These increases led yet again to price controls: after voluntary measures proved unsatisfactory, the Office of Price Stabilization was created and compulsory controls returned. The General Ceiling Price Regulation went into effect in early 1951, affecting primarily food and durable goods. Constrained by these controls, inflation was relatively modest through most of 1951, with the All-Items CPI increasing about 3 percent over the last 11 months of that year.
In retrospect, the early 1950s mark a turning point in the American inflation experience. The decades leading up to the Korean war34 era featured alternating periods of sharp inflation and genuine deflation, with the former generating active efforts to control prices and the latter generating fears of recession and, sometimes, active efforts to raise prices. Although severe inflation and even price controls would return, the post–Korean war era would look different from the 1941–1951 period, with less volatility and a near absence of deflation.
1951–1968
- Price movements are less volatile.
- With no major crisis, rationing and price controls are absent.
- Inflation is feared even as prices are stable.
- Inflation returns in the late 1960s.
- All-Items CPI: total increase, 33.9 percent; 1.7 percent annually
1951–1968 by the numbers
Largest 12-month increase (from 1952 onward): 12-month periods ending October, November, and December 1968, 4.7 percent each
Largest 12-month decrease: October 1953–October 1954, 0.9 percent
Annualized increase of selected major components and aggregates, 1951–1968:
Food, 1.3 percent
Rent, 2.0 percent
Apparel, 1.2 percent
Medical care, 3.8 percent
Transportation, 2.1 percent
Services, 3.2 percent
Commodities, 1.1 percent
Gasoline, 1.9 percent
Prices of selected food items, 1955:35
Apples, 15.1 cents/pound
Potatoes, 5.6 cents/pound
Bananas, 17.0 cents/pound
Rice 17.7 cents/pound
White bread 17.7 cents/pound
Round steak 90.3 cents/pound
Milk, 21.9 cents/quart
Butter, 70.9 cents/pound
Average prices of selected nonfood items, December 1955 (arithmetic average of prices in selected large cities):36
Living room suite, $172.44
Toilet paper, $0.09/roll
Men’s business shirt, $3.95
Gasoline, $0.29/gallon
Doctor’s office visit (general practitioner), $3.41
Man’s haircut, $1.42
Motion picture admission (adult), $0.73
The early 1950s mark the beginning of what could be called the modern era of inflation in the United States, with price changes that were nearly always positive, but usually relatively modest (see figure 4), at least in comparison to the peaks reached during each of the two World Wars. It is this experience that informs most American perceptions and expectations about inflation today.
As the decade of the 1950s opened, the market basket of the American consumer was beginning to resemble the modern one. Food expenditures became less dominant and durable goods increased in importance. This change reflected the postwar surge in demand for durable goods, as cars and televisions gained a foothold in American life. Food, which was about 40 percent of the market basket at the end of the 1940s, was less than 30 percent at the end of the 1950s and dropped to 22.7 percent by 1967. (By comparison, the percentage was about 14 percent in 2012.) New and used cars accounted for about 5 percent of the market basket in the 1950s, a percentage similar to current ones. The following tabulation shows the relative importance (i.e., the percentages) of selected items making up the market basket in December 1957: