If you look at American inflation rates going back to 1960, here is what you find:
- From 1960 to 1967, inflation was negligible–typically less than 2 percent. These were also years of low unemployment. Life was good, at least if you were a white worker and you didn’t have to worry about the draft.
- From 1968 to 1972, inflation increased to an average of over 4 percent. This number is high by current standards, and was definitely noticed at the time.
- Inflation exploded from 1973 to 1981. There were four years in which it reached double digits. This, of course, led to Paul Volcker, soaring interest rates, and the recession of the early 1980s.
- Between 1982 and 1991, the inflation rate fell back to an average of 4 percent. This was consistent with the figures between 1968 and 1972, but was high relative to recent experience.
- From 1992 through 2020, inflation always ran between 1 and 3 percent. In 2021, it increased to 4.7 percent. It has been higher this year.
What conclusions can you draw from this data? First, that Americans in the late 1970s had good reason to expect that inflation rates would remain high for the foreseeable future, given the magnitude of the problem and its persistence over more than a decade–hence, the need for shock treatment in the early 1980s. That is not true today. Due to demographic and technological changes and globalization, we have experienced nearly 30 years of minimal inflation. The American public’s apparent belief that the current rate of inflation is an aberration is consequently supported by the national experience, and we don’t need Jerome Powell to turn into Paul Volcker.