Chapter 6. Inflation

6.3 How the U.S. and Other Countries Experience Inflation

Learning Objectives

By the end of this section, you will be able to:

  • Identify patterns of inflation for the United States using data from the Consumer Price Index
  • Identify patterns of inflation on an international level

In the last three decades, inflation has been relatively low in the U.S. economy, with the Consumer Price Index typically rising 2% to 4% per year. Looking back over the twentieth century, there have been several periods where inflation caused the price level to rise at double-digit rates, but nothing has come close to hyperinflation.

Historical Inflation in the U.S. Economy

Figure 6.3 (a) shows the level of prices in the Consumer Price Index stretching back to 1947. In this case, the base years (when the CPI is defined as 100) are set for the average level of prices that existed from 1982 to 1984. Figure 6.3 (b) shows the annual percentage changes in the CPI over time, which is the inflation rate.

CPI in US from 1947 to 2020
Figure 6.3 (a) U.S. Price Level since 1947 Graph shows the trends in the U.S. Consumer Price Index from the year 1947 to 2020. In 1947, the graph starts out close to 20, rises to around 40 in 1970, then rises steadily after that reaching a high of nearly 280 in 2020. Check the FRED website for developments in 2021 and 2022! (Source:


Inflation Rate in US 1960 to 2020
Figure 6.3 (b) U.S. Price Inflation Rates Graph shows the trends in U.S. inflation rates from the year 1960 to 2020. Toward the end of the 1960s inflation was heating up and we see the two highest peaks of inflation in 1974 at 11% and 1980 at 13.5%.  From the 1980s through 2020 inflation was well under control, averaging out around 2.5%.  High inflation did return toward the end of 2021 and into 2022 so be sure and check FRED for the very latest numbers.  (Source:

Going further back in US history we would see two waves of inflation right after World War I and World War II, as well as two periods of severe negative inflation—called deflation—in the early decades of the twentieth century: one following the deep 1920-21 recession of and the other during the 1930s Great Depression of the 1930s. (Since inflation is a time when the buying power of money in terms of goods and services is reduced, deflation will be a time when the buying power of money in terms of goods and services increases.) For the period from 1900 to about 1960, the periods of major inflation and deflation nearly balanced each other out, so the average annual rate of inflation over these years was only about 1% per year. A third wave of more severe inflation arrived in the 1970s and departed in the early 1980s.

Visit or FRED to check the most recent developments in the US rate of inflation. During the period from January 2021 to January 2022 the US experienced it’s highest inflation rate in over 40 years with a 7.5% inflation rate based on the consumer price index. The two possible explanations for the recent period of high inflation were supply chain issues associated with the global COVID-19 pandemic and the issuance of too much fiscal stimulus during the pandemic which caused a surge in demand. Most likely history will show that it was some combination of those two things.

Visit this website to use an inflation calculator and discover how prices have changed in the last 100 years.

Times of recession or depression often seem to be times when the inflation rate is lower, as in the recession of 1920–1921, the Great Depression, the recession of 1980–1982, and the Great Recession in 2008–2009. There were a few months in 2009 that were deflationary, but not at an annual rate. High levels of unemployment typically accompany recessions, and the total demand for goods falls, pulling the price level down. Conversely, the rate of inflation often, but not always, seems to start moving up when the economy is growing very strongly, like right after wartime or during the 1960s. The frameworks for macroeconomic analysis, that we developed in other chapters, will explain why recession often accompanies higher unemployment and lower inflation, while rapid economic growth often brings lower unemployment but higher inflation.

Inflation around the World

Around the rest of the world, the pattern of inflation has been very mixed; Figure 6.4 shows inflation rates over the last several decades. Many industrialized countries, not just the United States, had relatively high inflation rates in the 1970s. For example, in 1975, Japan’s inflation rate was over 8% and the inflation rate for the United Kingdom was almost 25%. In the 1980s, inflation rates came down in the United States and in Europe and have largely stayed down.


The graph shows that the United States, Japan, Germany, and the United Kingdom all had periods of high inflation in the 1970s and early 1980s, though Germany did not have nearly the high rates of inflation as seen in the other countries. Since the early 1990s, all four countries have had inflation rates below 5%, with Japan’s rate consistently lower than those of Germany, the United Kingdom, and the United States. However, the graph also shows that, as of 2020, The United States had the highest inflation rate of the four.
Figure 6.4 Countries with Relatively Low Inflation Rates, 1960–2020 This chart shows the annual percentage change in consumer prices compared with the previous year’s consumer prices in the United States, the United Kingdom, Japan, and Germany. (Source:

Countries with controlled economies in the 1970s, like the Soviet Union and China, historically had very low rates of measured inflation—because prices were forbidden to rise by law, except for the cases where the government deemed a price increase to be due to quality improvements. However, these countries also had perpetual shortages of goods, since forbidding prices to rise acts like a price ceiling and creates a situation where quantity demanded often exceeds quantity supplied. As Russia and China made a transition toward more market-oriented economies, they also experienced outbursts of inflation, although we should regard the statistics for these economies as somewhat shakier. Inflation in China averaged about 10% per year for much of the 1980s and early 1990s, although it has dropped off since then. Russia experienced hyperinflation—an outburst of high inflation—of 2,500% per year in the early 1990s, although by 2006 Russia’s consumer price inflation had dipped below 10% per year, as Figure 6.5 shows. The closest the United States has ever reached hyperinflation was during the 1860–1865 Civil War, in the Confederate states.

The graph shows that Brazil had an extremely high inflation rate, over 2000%, in 1990.

Figure 6.5 (a) Countries with Relatively High Inflation Rates, 1980–1995 These charts show the percentage change in consumer prices compared with the previous year’s consumer prices in Brazil, China, and Russia. Of these, Brazil and Russia experienced very high inflation at some point between the late-1980s and late-1990s. (Source:


The graph, which is on a smaller scale, shows that Russia had a spike in its inflation rate in the late 1990s. Though Russia's rates have all been lower over the last decade, they are still relatively high rates.
Figure 6.5 (b) Countries with Relatively High Inflation Rates, 1996-2020 Though not as high, China also had high inflation rates in the mid-1990s. Even though their inflation rates have come down ovover the last two decades, several of these countries continue to see significant inflation rates. (Source:

Many countries in Latin America experienced raging inflation during the 1980s and early 1990s, with inflation rates often well above 100% per year. In 1990, for example, both Brazil and Argentina saw inflation climb above 2000%. Certain countries in Africa experienced extremely high rates of inflation, sometimes bordering on hyperinflation, in the 1990s. Nigeria, the most populous country in Africa, had an inflation rate of 75% in 1995.

In the early 2000s, the problem of inflation appears to have diminished for most countries, at least in comparison to the worst times of recent decades. As we noted in this earlier Bring it Home feature, in recent years, the world’s worst example of hyperinflation was in Zimbabwe, where at one point the government was issuing bills with a face value of $100 trillion (in Zimbabwean dollars)—that is, the bills had $100,000,000,000,000 written on the front, but were almost worthless. In many countries, the memory of double-digit, triple-digit, and even quadruple-digit inflation is not very far in the past.

Self-Check Question – answers available at end of chapter

  1. Go to this website for the Purchasing Power Calculator at How much money would it take today to purchase what one dollar would have bought in the year of your birth?


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