Inflation Now and 70 Years Ago

Inflation surged at the beginning of the Korean War, with the economy at full employment. Here’s CPI and PPI inflation then and now…

Figure 1: CPI-all urban, month-on-month inflation (blue), Cleveland Fed nowcast for July (blue +) and lagged 70.5 years (red). Source: BLS via FRED, Cleveland Fed, author’s calculations.

While US inflation has surged in recent months, it has reached nowhere as high as it did during the early 1950’s. Interestingly, inflation according to the PPI for all commodities (so, no services, etc.) was of comparable levels.

Figure 2: PPI-all commodiites, month-on-month inflation (blue), and lagged 70.5 years (red). (FRED series PPIACO). Source: BLS via FRED, author’s calculations.

The interesting point is that while the (old style) PPI has in recent months had comparable jumps to that experienced in the Korean War, the CPI has risen nowhere nearly as much.

Comparisons going forward are somewhat clouded by the imposition of price controls in January 1951.



11 thoughts on “Inflation Now and 70 Years Ago

  1. pgl

    ‘While US inflation has surged in recent months, it has reached nowhere as high as it did during the early 1950’s.’

    But this is not going to stop our resident inflation hawks from complaining about the high cost of bagels.

    What is interesting about 70 years ago is how quickly inflation fell once the Korean War was wound down. That did not exactly happen when we pulled out of Vietnam.

  2. Macroduck

    The CPI basket 7 decades ago was heavier on goods, lighter on services, than today. That difference in composition probably accounts for some of the difference in performance.

    What share of GDP was the military back then? Apart from the military sector’s size, how large was the shock? Time for a trip to FRED.

    Back then, a demand shock. Now, a supply shock with the accompanying demand shock mitigated by policy.

    None of which may be relevant to the point that one-time price gains need not lead to persistent inflation.

    1. pgl

      “What share of GDP was the military back then?”

      I think defense spending was more than 10% of GDP back then. But yea – let’s check with FRED or BEA.

  3. Macroduck

    Military expenditures went from around 7.5% of GDP prior to the Korean “action ” to around 16% when in full swing. The military takes about 4% today, less than the swing back then. The Pentagon was able to induce a large demand shock.

    1. paddy Kivlin

      military expenditures as part of federal outlays including “entitlements in 1950 was very high. idk %.

      bottomed around 2000 after collapse of ussr, rose in gwot, settling recently.

      us discretionary spending as part of gdp:

      since peace dividend of early 90’s defense spending has kept about half of “discretionary spending

      the world was too different in 1950…

  4. Dr. Dysmalist

    Ooooooooh, a 70-1/2 year lag! Aren’t you the maverick! Actually, I think it’s very cool! I’m jealous I didn’t think of it. It’s too bad you won’t be able to extend the comparison due to the price controls back then. That would be interesting.

  5. baffling

    since we are going back in time
    covid took us back to the same life expectancy of nearly 2 decades ago. and yet we had folks like corev, dick stryker and bruce hall, among others, arguing that this was simply the flu and let it be. can you imagine what life expectancy would have been reduced to if many of the states had followed their advice, and chose not to do anything to prevent the virus. just let it reach herd immunity naturally? this is a STUNNING statistic, and an indictment on those who refused to take the virus seriously.

Comments are closed.