Wars, oil crises and a pandemic have all played a part in driving up inflation over the past century in the United States.
The U.S. Bureau of Labor Statistics has tracked inflation since 1913, charting the rise and fall of the Consumer Price Index, which measures what Americans are paying for food, clothing, housing, energy, transportation and more. Over more than a century, inflation has reared its ugly head during times of postwar prosperity, crippling recession, oil crises and global pandemics.
Here are six periods when inflation reached historic heights in the United States.
1. World War I Inflation Was the Worst
America’s worst inflation on record occurred during and after World War I, when the price of just about everything—food, clothing, household goods—more than doubled. The largest single-year price increase during the post-World War I era was 23.7 percent from June 1919 to June 1920. But taken as a whole, prices surged more than 80 percent from late 1916 to mid-1920.
As with most inflationary episodes, the baseline cause of the World War I-era inflation boom was a shift in supply and demand.
“Wars, especially large-scale wars like World War I and World War II, demand a lot of resources,” says Steve Reed, an economist with the Bureau of Labor Statistics. “Resources are being taken out of the non-military sector of the economy and diverted to military use, and that can create some shortages and scarcities, which leads to people bidding up the prices of remaining items.”
In 1920, regional Federal Reserve banks tried to combat runaway inflation by raising their discount interest rates sharply. This was before the Federal Reserve had a unified national monetary policy. High interest rates and a cooling economy sunk the U.S. into a deep, but thankfully brief recession from 1920 to 1922.
Reed says that the post-World War I period was one of the most volatile in American history in terms of consumer prices. After skyrocketing more than 23 percent in 1920, prices fell more than 15 percent in 1921.
2. World War II Rationing Led to Postwar Demand
Before World War II, the greatest economic concern for most Americans wasn’t inflation, but deflation. In the early 1930s, the Great Depression brought record unemployment and economic stagnation. With little money to spend, consumer demand dried up and prices fell. The period from 1931 to 1932 marked the greatest deflation in U.S. history at more than 10 percent.
But the same forces that drove up prices during the World War I era went into overdrive for World War II.
“World War II was a total war,” says Reed. “It diverted an enormous amount of manpower and resources to the war effort. On top of that, there were a lot of wartime restrictions on consumer behavior. Lots and lots of goods were rationed; not just luxury goods, but basic staple items.”
During World War II, there were shortages of everything: coffee, milk, meat, sugar, canned goods, tires, gasoline and more. Since low supply can drive inflation, the Roosevelt administration instituted price controls and rationing of in-demand goods. Those tactics worked to suppress inflation during the active war years, but it laid the conditions for an explosive postwar inflation rebound.
When rationing and price controls were dropped after World War II, it released a tsunami of pent-up consumer demand. Soldiers came home and American families that had dutifully been buying war bonds for years were eager to spend their savings.
“There was this surge of people wanting to buy stuff, but it takes the economy a little bit of time to transition from military goods back to domestic goods,” says Reed. “Before the supply can match this pent-up demand, there was a really strong inflationary period from the latter part of 1946 to 1947.”
The postwar mismatch of supply and demand drove inflation to increase 20.1 percent from March 1946 to March 1947 alone. But even higher prices didn’t slow consumers down. From 1945 to 1949, American households purchased 20 million refrigerators, 21.4 million cars and 5.5 million stoves.
3. The Korean War Triggers Inflation Anxieties
By the end of the 1940s, the wildest years of the post-World War II economic boom were over and the economy even slipped into recession. But that didn’t last long. The U.S. went to war with Korea in June 1950 and inflation was back in the news.
With fresh memories of World War II shortages and rationing, consumers scrambled to buy household goods, cars and non-perishable food. That drove overall inflation to a high of 6.8 percent from 1950 to 1951 with food prices alone jumping 10 percent.
Under the newly created Office of Price Stabilization, the federal government reinstituted price controls and rationing until the war’s end in 1953. Since shortages and rationing during the Korean War weren’t as severe as World War II, there wasn’t as much pent-up demand and runaway inflation after the Korean conflict.
In fact, the mid-1950s to late 1960s marked one of the calmest inflationary periods on record, when strong consumer demand was matched by a booming economy. Year-over-year inflation in that period ranged between 1 and 3 percent.
But as prosperous as the 1950s and 1960s were, Reed says that nostalgia for America’s economic “golden age” distorts the true picture of how volatile prices were throughout most of the 20th century.
“The ’50s are looked upon fondly as a period of prosperity and relative price stability, and I think some people think that was the norm, that it’s the way it always was,” says Reed. “But it was really just a brief period. Almost the entire rest of our history is more bumpy and problematic in terms of economic performance.”
4. The 1970s: Stagflation
While wars were the main driver of inflation in the first half of the 20th century, it was oil prices that dominated the second half.
In the 1970s, the U.S. economy was shaken by two “oil shocks.” The first was in 1973 and 1974, when the Organization of Arab Petroleum Exporting Countries (OAPEC) declared an oil embargo against the U.S. and the Netherlands over their support of Israel during the fourth Arab-Israeli war. A second oil shock occurred in 1979 when oil production was disrupted by the Iranian Revolution and the Iran-Iraq War.
When oil prices surge, so do the prices of gasoline, heat, electricity and even food. Overall inflation shot up 10.5 percent during the first “oil shock” (December 1972 – December 1974) with the price of energy increasing 19.3 percent and the price of food up 16.1 percent.
Things were even worse during the second oil shock with overall inflation reaching a peak of 14.8 percent between March 1979 and March 1980, the highest on record since World War II. Not only was inflation painfully high, but the economy of the late 1970s was also in a recession. This dismal double-whammy was dubbed “stagflation.”
“High inflation is usually associated with economies that are too ‘hot’—prices go up because the economy is booming and wages are going up,” says Reed. “That was certainly not the case from 1979 to 1981. Stagflation really was a ‘worst of both worlds’ scenario—high inflation, high unemployment and slow growth.”
5. Oil and Gas Spikes in 1989 and 2008
The year 1983 marked the end of the painful stagflation era and the beginning of decades of steady and mostly stable inflation. The two exceptions were in 1989 and 2008, when spiking oil and gas prices triggered brief bouts of higher inflation.
Iraq invaded its oil-producing neighbor Kuwait in August of 1990, but growing tensions between the countries—and Iraqi leader Saddam Hussein’s erratic behavior—drove up oil prices months earlier. Crude oil went from a low of $16.04 a barrel in 1989 to a high of $32.88 a barrel in 1990, more than double the price.
The surging cost of oil and gasoline pushed the overall inflation rate in the U.S. to a high of 6.3 percent over the 12 months between October 1989 and October 1990. After the Gulf War, energy prices settled back down and inflation subsided.
The next brief inflationary episode came in 2008, right in the middle of the Great Recession. The collapse of the housing market and the near-failure of several major U.S. banks led to huge stock market losses and rising unemployment rates. Just when things couldn’t get worse, oil prices jumped from a low of $35.59 a barrel to a high of $127.77 a barrel in 2008.
The price spike was caused by record high demand from China, the Middle East and Latin America combined with overall uncertainty about the global oil supply. At the gasoline pump, Americans went from paying less than $2 a gallon to a high of $4.14 a gallon in July 2008. Overall inflation climbed over 5 percent for the first time since 1991, but quickly receded in 2009 when the struggling U.S. economy briefly dipped into deflation for the first time since 1955.
6. Pandemic Inflation Worst in 40 Years
The COVID-19 pandemic upended the global economy in ways the world hadn’t seen since World War II. Hundreds of millions of people worldwide were forced to stay home from work, global supply chains ground to a halt and there were widespread shortages of consumer goods.
Similar to World War II, when pandemic restrictions finally loosened in the U.S., there was pent-up consumer demand chasing a relatively low supply—the perfect recipe for inflation.
The 12-month inflation rate peaked from June 2021 to June 2022 at 9.1 percent for all goods. Food prices experienced some of the highest price increases, jumping 11.4 percent at the grocery story over that same period. For many Americans, these dramatic price increases came as a shock, considering that year-over-year inflation had averaged just 2.3 percent from 1991 to 2019.
“The pandemic came after nearly four decades of relatively modest price changes,” says Reed. “It was the highest inflation since the early 1980s, but you put it in a broader contest, the pandemic inflation doesn’t rank so highly. It wasn’t nearly as severe as the early 1980s, the oil shocks of the 1970s or post-World War II.”