US Inflation

Using Data Updated with August 2024 data as of: September 11, 2024

The Bureau of Labor Statistics is the primary source for data.

Research Summary and Editorial

Our highest recent year of inflation, 2022, at 8.0%, is far from being the worst in our nation's history, as is claimed by a current 2024 presidential candidate. Data of historical US inflation overwhelmingly refute this claim, which I could characterize as nothing but a fictional talking point intended to evoke angry emotions among voters through it's wreckless and constant repetition. While not insignificant to most consumers, we have experienced twenty-seven years in our nation's history with higher inflation, with the worst being almost four times higher at 29.8%. If we consider the detrimental impacts of deflation, there are at least another twenty-four years that had worse price instability, making a total of no less than fifty-one years worse than 2022.

Inflation Explained

Most of us know that high inflation is bad, but deflation (negative inflation) is detrimental. Stable prices, frequently referred to as price stability, is achieved through a balance of supply and demand. Common causes of inflation include increases in money supply (governments creating more currency) and supply chain disruptions, as are common during wars and also are triggered by the inability to supply enough of a critical commodity, like oil, corn, oranges, and chickens. Deflation frequently occurs when demand drastically decreases, often triggered by recession, and itself can lead to a viscious cycle leading to severe recessions or depressions.

So what's good look like? A little inflation is good -- I'll explain. Currently, US economists and central bankers are trying to achieve inflation of around 2%, and we are hovering around 2.6% in 2024. For context, only in 24 of the 250 years of US inflation data was inflation between 1.5% and 2.5%.

Why is a little inflation good? Especially for economies that heavily rely on debt for growth: think housing loans, auto loans, small business loans, education loans, corporate bonds, and government debt. Most of these debts are long term in nature. While the amount of the debt is fixed in an amount when it is secured, the income used to repay the loan is likely to increase at approximately the rate of modest inflation, which makes the loan a lesser burden to the borrower over time.

Imagine the following scenario:

• A home loan for $100,000 on a $125,000 home, with an annual income of $30,000. A $600 monthly loan payment (not including interest or taxes) represents $7,200 per year, or about 24% of income.

Now let's demonstrate the impact of moderate inflation and moderate deflation:

1. In 20 years, if inflation and wage increases both averaged 2.5% per year, current annual income would be about $49,500. The annual home loan payment is still $7,200, which is now less than 15% of income. 9% of income (24%-15%), or $4,455 can now be reallocated towards savings, goods, or services that enhance the home owner's standard and quality of life. Furthermore, if the home value appreciated by the same amount, that home would now be worth $205,000, which represents a substantial increase in wealth, or net worth for the owner.
2. Imagine the same scenario, but with deflation of 2.5%. Income is now $18,000, and the loan payment hasn't changed, making it almost 40% of income, a substantial decrease in standard and quality of life. Furthermore, the home is now worth only $75,000.

Often economic growth and inflation are closely linked. Years of low inflation are not necessarily positive if growth was also very low, or even negative. This is why other metrics such as real GDP, or GDP adjusted for inflation, employment rates, and income and savings should be considered to assess whether the living standards are increasing or decreasing for citizens of an economy.

A Complete US Inflation History 250 Years, 1775-2024

There are also some reliable resources that contain our nation's complete price stability over exactly 250 years, and there are at least four more periods of much higher and prolonged periods of inflation, not to mention a significant number of prolonged periods of deflation.

The inflation of the past four years: 4.7%, 8.0%, 4.1%, and 2.6% (year-to-date), rank 48th, 28th, 58th, and 90th highest. The highest year of inflation doesn't rank in the top 10% of our nation's history, and the highest year of inflation was nearly four times higher at 29.8%. There have been an additional 24 years deflation of 5% or more, which arguably were worse for our economy and price stability than the recent four years, which would re-rank them 72nd, 52nd, 82nd, and 112th worst years for price stability, between right in the middle to a little on the high side. Definitely not resembling "worst in our nation's history."

The recent inflation we experienced, while not without pain to the which peaked in 2022, was insignificant relative to our nation's inflation history. Compared to the experiences of our forefathers, I'm embarrassed to think of recent years as a hardship. Perhaps, we have become soft and spoiled as to how great our nation and our modern times are?

111 Years of BLS Inflation History, 1914-2024

When comparing the 8.0% inflation of 2022 to 111 years of recent inflation data, there were twelve years during which inflation was higher. Two of those years had inflation more than double, at 17.8% and 17.3%. There were also five years during which we experienced deflation greater than 5%, all during severe depressions of 1921 and 1931. In total, there were seventeen years where price stability was worse, or far worse than our recent experience with inflation.

The inflation of the past four years: 4.7%, 8.0%, 4.1%, and 2.6% (year-to-date), rank 28, 13, 33, and 57. Recent price instability are hardly noticeable, when compared to the inflation experienced during the two world wars, the persistent inflation in the 1970s and 1980s, and the extreme deflation during the early 1920s and early 1930s.

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Sources

• Lawrence H. Officer, "What Was the Consumer Price Index Then? A Data Study"
• Samuel H. Williamson, "The Annual Consumer Price Index for the United States, 1774-Present," MeasuringWorth, 2024.
• https://www.visualizingeconomics.com/blog/2008/05/27/us-inflation-annual-percent-change-1774-2007
• CPI for All Urban Consumers (CPI-U) 1982-84=100 (Unadjusted) - CUUR0000SA0