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Can We Whip Inflation Now? Good Luck With That.

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David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
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It was August 1942. Battles raged across Europe, while U.S. troops had just landed on Guadalcanal. But folks back home had more on their minds: “Everybody is worrying about inflation,” Barron’s wrote.

Today, the coronavirus pandemic rages across the world and everybody is worrying about inflation. In fact, as newspaper headlines and political speeches from the past century tell us, inflation worries have always been with us, for good reason.


Women and children marching to protest the rise of food prices in New York in April 1973. Keystone:Hulton Archive:Getty Images.jpeg

Women and children marching to protest the rise of food prices in New York in April 1973./Photo: Keystone/Hulton Archive/Getty Images


Inflation—the decline in a currency’s purchasing power due to rising prices—has played a central role in all of America’s worst economic episodes. It makes families worry how far they can stretch paychecks and burdens companies with rising wage and supply costs. It can drive economies into recession and depression.

Inflation has been with us since before Nero debased the Roman currency by cutting silver with other metals. Yet all our experience with inflation offers no sure remedy for it; hence the worry that it’s always just around the economic corner.

The U.S. suffered three periods of hyperinflation in the 20th century: one following each world war and the Great Inflation of the 1970s. The first, coinciding with World War I, was the most severe.


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From December 1916 to June 1920, the U.S. consumer price index rose at an 18.5% annualized rate, according to Bureau of Labor Statistics data. Soldiers returning home found prices 80% higher than when they left, yet wages hadn’t followed suit.

In the 1920 presidential election, even as the U.S. debated joining the League of Nations, the biggest issue was “the cost of living, which overshadows all other matters,” The Wall Street Journal wrote.

While some haphazard price controls were attempted, hyperinflation only ended with a price crash. The consumer price index fell 15.8% from June 1920 to June 1921, and the nation tumbled into a depression.

That experience was still fresh in America’s memory when war returned. President Franklin Roosevelt, with “no time to wait for Congressional action,” Barron’s wrote, established the Office of Price Administration in 1941, before Pearl Harbor.

The OPA capped the costs of many items and rationed others, including shoes, gasoline, coffee, and meat. This shared sacrifice worked. The CPI fell from 10.9% in 1942 to 6%, 1.6%, and 2.3% over the next three years, respectively.

That sacrifice also created a $36 billion “inflationary gap,” Barron’s wrote in 1944 of the money Americans had socked away. “War workers who used to drink beer now find they can afford whisky,” we noted.

When controls were lifted in 1946, that cash flooded back into the economy and prices skyrocketed; food costs doubled by August 1948. Then, as in 1920, prices crashed and the economy slowed into recession. It was brief, though, and ushered in a regime of modest, mostly positive price growth.

Still, in 1964, when prices rose just 1.3%, there was “constant discussion of inflation,” according to the New York Times, which deemed it “reminiscent of the family that calls off the picnic when the sun is shining because something in their bones tells them it’s going to rain.”

The rain soon came, with the 1968-83 period dubbed the Great Inflation. The CPI jumped 186% during those years, or 7.3% annually. But war wasn’t the culprit this time. “The origins of the Great Inflation,” according to a Federal Reserve mea culpa, “were policies that allowed for an excessive growth in the supply of money.”

The Fed’s downfall was a belief in the Phillips curve, which posited that “permanently lower rates of unemployment could be ‘bought’ with modestly higher rates of inflation.” This was refuted in the 1970s by the coming of stagflation, a low-growth period with high levels of both inflation and unemployment.

The Nixon administration’s wage and price controls proved unpopular, especially among the business class—“Big Mistake,” Barron’s called them in 1973—and ineffective. It was the last time that strategy was used to fight rising prices.

President Gerald Ford, memorably, launched the “Whip Inflation Now” campaign in 1974. Complete with WIN buttons, it offered “cautious, uncontroversial admonitions,” the Journal wrote, such as “balance your family budget, turn down the thermostat, shop for bargains.” It failed.

The Carter administration was undone by economic malaise, but Paul Volcker’s appointment as Fed chairman signaled the end of the Great Inflation. He tightened the money supply and ratcheted up the federal-funds rate, pushing unemployment over 10% and the economy into recession. Inflation peaked in 1980 and trended downward for decades.

Not only was the Great Inflation over, but, since the 2007-09 financial crisis, global central banks have been trying and failing to increase inflation to a paltry 2%. This low-yield world seemed like the new normal—until Covid.

Can we whip inflation now? The 1980s episode suggests the Fed has the tools to tame rising prices, even if recession is the cost. Of course, the Volcker cure might prove as useless against the next occurrence of inflation as the Phillips curve was against the last one.

Perhaps it’s time to start worrying.

The Back Story, a new Barron’s feature, will place financial and economic news in historical perspective. Appearing occasionally, it will build on the historical articles presented throughout 2021, our centennial year.

Email: editors@barrons.com

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting