Are Inflation Rates Running Wild?

You might be surprised at how inflation has been behaving.

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Inflation in Retirement. GSO Images

Because of increased government spending in the past decade, there has been lots of talk about inflation running wild. Everyone says it will happen. As you can see from the data below, these tall tales of out-of-control inflation have been, well, over-inflated.

In the United States, the inflation rate is measured by the Bureau of Labor Statistics (BLS) which tracks the change in price of a basket of over 200 goods and services, and records this number each month.

To calculate the average inflation rate for the year they average all the monthly recorded prices for this basket of goods and services, and compare it to the previous year’s average.

The average annual historical inflation rates are listed in the table at the bottom of this article - from the most recent year all the way back to 1973. In recent history the highest annual inflation rate occurred in 1980 with prices increasing at 13.5%. The lowest annual inflation rate was 2009; technically this was deflation as average prices decreased that year.

For those in or near retirement, the question is "How will inflation affect your standard of living?" You might be surprised at how inflation impacts retirees. It has a larger impact on lower income retirees, and little impact on high income/higher net worth retirees.

Recent research shows many higher income retirees have not needed their income to go up at at the rate of inflation.

For retirees who are already collecting Social Security, lower inflation rates mean little increase in benefits. In 2016 benefits did not increase at all from 2015 levels, whereas in 2015 they went up 1.7% from their 2014 amounts.

Historical Annual Inflation Rates - 1973 through 2015 
YearInflation Rate 
2015 Inflation.70%
2014 Inflation.80%
2013 Inflation1.5%
2012 Inflation2.1%
2011 Inflation3.2%
2010 Inflation1.6%
2009 Deflation-.4%
2008 Inflation3.8%
2007 Inflation2.8%
2006 Inflation3.2%
2005 Inflation3.4%
2004 Inflation2.7%
2003 Inflation2.3%
2002 Inflation1.6%
2001 Inflation2.8%
2000 Inflation3.4%
1999 Inflation2.2%
1998 Inflation1.6%
1997 Inflation2.3%
1996 Inflation3.0%
1995 Inflation2.8%
1994 Inflation2.6%
1993 Inflation3.0%
1992 Inflation3.0%
1991 Inflation4.2%
1990 Inflation5.4%
1989 Inflation4.8%
1988 Inflation4.1%
1987 Inflation3.6%
1986 Inflation1.9%
1985 Inflation3.6%
1984 Inflation4.3%
1983 Inflation3.2%
1982 Inflation6.2%
1981 Inflation10.3%
1980 Inflation13.5%
1979 Inflation11.3%
1978 Inflation7.6%
1977 Inflation6.5%
1976 Inflation5.8%
1975 Inflation9.1%
1974 Inflation11.0%
1973 Inflation6.2%