US Inflation Rate by Year from 1929 to 2022

How Bad Is Inflation? Past, Present, Future

boat yard during world war II
••• The U.S. National Archives and Records Administration

The U.S. inflation rate by year is the percentage of change in product and service prices from one year to the next, or year-over-year

The inflation rate responds to each phase of the business cycle. That's the natural rise and fall of economic growth that occurs over time. The cycle corresponds to the highs and lows of a nation's gross domestic product (GDP). It measures all goods and services produced in the country.

Key Takeaways

  • The U.S. inflation rate by year is how much prices change year-over-year.
  • Year-over-year inflation rates give a clearer picture of price changes than annual average inflation. 
  • The Federal Reserve uses monetary policy to achieve its target rate of 2% inflation.
  • Inflation has been stable over the last couple of years thanks to better policy decisions and managing inflation expectations.

Business Cycle: Expansion and Peak

The business cycle runs in four phases. The first phase is the expansion phase. This is when economic growth is positive, with a healthy 2% rate of inflation. The Federal Reserve considers this an acceptable rate of inflation.

As the economy expands past a 3% rate of growth, it can create an asset bubble. That's when the market value of an asset increases more rapidly than its underlying real value.

The second phase of the cycle is known as the peak. This is the time when expansion ends and contraction begins.

Economic Cycles
Business Cycle Phases.

Business Cycle: Contraction and Trough

As the market resists any higher prices, a decline begins. This is the beginning of the third, or contraction, phase. The growth rate turns negative. If it lasts long enough, it can create a recession.

During a recession, deflation can occur. That's a decrease in the prices of goods and services. It can often be more dangerous than inflation.

As the economy continues its downward trend, it reaches the lowest level possible for the circumstances. This trough is the fourth phase, where contraction ends and economic expansion begins. The rate of inflation begins to increase again, and the cycle repeats.

During recessions and troughs, the Federal Reserve (the Fed) uses monetary policy to control inflation, deflation, and disinflation.

The Effect of Monetary Policy

The Fed focuses on the Consumer Price Index for All Urban Consumers: Less Food and Energy. It excludes volatile gas and food prices. This measurement is more popularly known as the core inflation rate.

The Fed sets a target inflation rate of 2%. If the core rate rises much above that, the Fed will execute a contractionary monetary policy. It will increase the federal funds rate. This is the rate at which banks lend to each other overnight. Historically, this action reduces demand and forces prices lower.

The Fed can also lower the federal discount rate, which makes it cheaper to borrow money from the Fed itself. This is an attempt to increase demand and raise prices.

Other tools that the Fed uses are reserve requirements (increasing the amount held in reserves), open market operations (increasing transactions in U.S. securities), and reserve interest (paying interest in excess reserves to banks).

U.S. Inflation Rate History and Forecast

The best way to compare inflation rates is to use the end-of-year CPI. This creates an image of a specific point in time. For example, in 1933, January began with a CPI of -9.8%. By the end of the year, CPI had increased to 0.8%. If you were to calculate the average for the year, the average would be -5.1%. This gives you the idea that prices had fallen over the year when they had actually risen.

The table below compares the inflation rate (December end-of-year) with the fed funds rate, the phase of the business cycle, and the significant events influencing inflation. The most recent forecast is in the U.S. Economic Outlook.

Year Inflation Rate YOY Fed Funds Rate* Business Cycle (GDP Growth) Events Affecting Inflation
1929 0.6% NA August peak Market crash
1930 -6.4% NA Contraction (-8.5%) Smoot-Hawley
1931 -9.3% NA Contraction (-6.4%) Dust Bowl
1932 -10.3% NA Contraction (-12.9%) Hoover tax hikes
1933 0.8% NA Contraction ended in March (-1.2%) FDR's New Deal
1934 1.5% NA Expansion (10.8%) U.S. debt rose
1935 3.0% NA Expansion (8.9%) Social Security
1936 1.4% NA Expansion (12.9%) FDR tax hikes
1937 2.9% NA Expansion peaked in May (5.1%) Depression resumes
1938 -2.8% NA Contraction ended in June (-3.3%) Depression ended
1939 0.0% NA Expansion (8.0% Dust Bowl ended
1940 0.7% NA Expansion (8.8%) Defense increased
1941 9.9% NA Expansion (17.7%) Pearl Harbor
1942 9.0% NA Expansion (18.9%) Defense spending tripled
1943 3.0% NA Expansion (17.0%) (same as above)
1944 2.3% NA Expansion (8.0%) Bretton Woods
1945 2.2% NA Feb. peak, Oct. trough (-1.0%) Truman ended WWII
1946 18.1% NA Expansion (-11.6%) Budget cuts
1947 8.8% NA Expansion (-1.1%) Marshall Plan,Truman Doctrine, Cold War
1948 3.0% NA Nov. peak (4.1%)  
1949 -2.1% NA Oct trough (-0.6%) Fair Deal, NATO
1950 5.9% NA Expansion (8.7%) Korean War
1951 6.0% NA Expansion (8.0%)  
1952 0.8% NA Expansion (4.1%)  
1953 0.7% NA July peak (4.7%) Eisenhower ended Korean War
1954 -0.7% 1.25% May trough (-0.6%) Dow returned to 1929 high
1955 0.4% 2.50% Expansion (7.1%)  
1956 3.0% 3.00% Expansion (2.1%)  
1957 2.9% 3.00% Aug. peak (2.1%) Recession
1958 1.8% 2.50% April trough (-0.7%) Recession ended
1959 1.7% 4.00% Expansion (6.9%) Fed raised rates
1960 1.4% 2.00% April peak (2.6%) Recession
1961 0.7% 2.25% Feb. trough (2.6%) JFK's deficit spending ended recession
1962 1.3% 3.00% Expansion (6.1%)  
1963 1.6% 3.5% Expansion (4.4%)  
1964 1.0% 3.75% Expansion (5.8%) LBJ Medicare, Medicaid
1965 1.9% 4.25% Expansion (6.5%)  
1966 3.5% 5.50% Expansion (6.6%) Vietnam War
1967 3.0% 4.50% Expansion (2.7%)  
1968 4.7% 6.00% Expansion (4.9%) Moon landing
1969 6.2% 9.00% Dec. peak (3.1%) Nixon took office
1970 5.6% 5.00% Nov. trough (0.2%) Recession
1971 3.3% 5.00% Expansion (3.3%) Wage-price controls
1972 3.4% 5.75% Expansion (5.3%) Stagflation
1973 8.7% 11.00% Nov. peak (5.6%) End of gold standard
1974 12.3% 8.00% Contraction (-0.5%) Watergate
1975 6.9% 6.50% March trough (-0.2%) Stop-gap monetary policy, Fed raised rates to fight inflation, then lowered them to fight recession, confused businesses kept prices high
1976 4.9% 4.75% Expansion (5.4%)  
1977 6.7% 6.50% Expansion (4.6%)  
1978 9.0% 10.00% Expansion (5.5%)  
1979 13.3% 12.00% Expansion (3.2%)  
1980 12.5% 18.00% Jan. peak (-0.3%) Recession
1981 8.9% 12.00% July trough (2.5%) Reagan tax cut
1982 3.8% 8.50% November (-1.8%) Recession ended
1983 3.8% 9.25% Expansion (4.6%) Reagan increased military spending
1984 3.9% 8.25% Expansion (7.2%  
1985 3.8% 7.75% Expansion (4.2%)  
1986 1.1% 6.00% Expansion (3.5%) Tax cut
1987 4.4% 6.75% Expansion (3.5%) Black Monday crash
1988 4.4% 9.75% Expansion (4.2%) Fed raised rates
1989 4.6% 8.25% Expansion (3.7%) S&L Crisis
1990 6.1% 7.00% July peak (1.9%) Recession
1991 3.1% 4.00% Mar trough (-0.1%) Fed lowered rates
1992 2.9% 3.00% Expansion (3.5%) NAFTA drafted
1993 2.7% 3.00% Expansion (2.8%) Balanced Budget Act
1994 2.7% 5.50% Expansion (4.0%)  
1995 2.5% 5.50% Expansion (2.7%)  
1996 3.3% 5.25% Expansion (3.8%) Welfare reform
1997 1.7% 5.50% Expansion (4.4%) Fed raised rates
1998 1.6% 4.75% Expansion (4.5%) LTCM crisis
1999 2.7% 5.50% Expansion (4.8%) Glass-Steagall repealed
2000 3.4% 6.50% Expansion (4.1%) Tech bubble burst
2001 1.6% 1.75% March peak, Nov. trough (1.0%) Bush tax cut, 9/11 attacks
2002 2.4% 1.25% Expansion (1.7%) War on Terror
2003 1.9% 1.00% Expansion (2.9%) JGTRRA
2004 3.3% 2.50% Expansion (3.8%)  
2005 3.4% 4.25% Expansion (3.5%) Katrina, Bankruptcy Act
2006 2.5% 5.25% Expansion (2.9%) Bernanke became Fed Chair
2007 4.1% 4.25% Dec peak (1.9%) Bank crisis
2008 0.1% 0.00% Contraction (-0.1%) Financial crisis
2009 2.7% 0.00% June trough (-2.5%) ARRA
2010 1.5% 0.00% Expansion (2.6%) ACA, Dodd-Frank Act
2011 3.0% 0.00% Expansion (1.6%) Debt ceiling crisis
2012 1.7% 0.00% Expansion (2.2%)  
2013 1.5% 0.00% Expansion (1.8%) Government shutdown. Sequestration
2014 0.8% 0.00% Expansion (2.5%) QE ends
2015 0.7% 0.25% Expansion (2.9%) Deflation in oil and gas prices
2016 2.1% 0.75% Expansion (1.6%)  
2017 2.1% 1.50% Expansion (2.4%) Core inflation rate 1.7%
2018 1.9% 2.50% Expansion (2.9%) Core rate 2.2%
2019 2.3% 1.75% Expansion (2.2%) Core rate 2.3%
2020 1.9% 0.25% Expansion (2.0%) Forecast: Core rate 1.9%
Fed funds rate as of March 15, 2020.
2021 2.0% 2.0% Expansion (1.9%) Forecast: Core rate is 2.0%
2022 2.0% 2.0% Expansion
(1.8%)
Forecast: Core rate is 2.0%
*Top of the range for the targeted fed funds rate.

Why The Inflation Rate Matters

The inflation rate demonstrates the health of a country's economy. It is a measurement tool used by a country's central bank, economists, and government officials to gauge whether action is needed to keep an economy healthy. That's when businesses are producing, consumers are spending, and supply and demand are as close to equilibrium as possible.

A healthy rate of inflation is good for both consumers and businesses. During deflation, consumers hold on to their cash because the goods will be cheaper tomorrow. Businesses lose money, cutting costs by reducing pay or employment. That happened during the subprime housing crisis. In galloping inflation, consumers spend now before prices rise tomorrow. That artificially increases demand. Businesses raise prices because they can, as inflation spirals out of control.

When inflation is steady, at around 2%, the economy is more or less as stable as it can get. Consumers are buying what businesses are selling.

Resources for Table

  • Historical Inflation Rate, Bureau of Labor Statistics. Year-over-year rate.
  • Historical Targeted Fed Funds Rate.
  • Historical Fed Funds Rate, Federal Reserve Bank of New York. Used to estimate targeted fed funds rate before 1971.
  • Historical Fed Funds Rate, Federal Reserve Bank of New York. Used to estimate targeted fed funds rate 1971-1989.
  • Open Market Operations Archive, Federal Reserve Board. Targeted Fed Funds Rate 1990-2002.
  • Open Market Operations, Federal Reserve Board. Targeted Fed Funds Rate 2003-2022.
  • Recession History
  • History of Gold Standard
  • Business Cycle Dates, NBER
  • National Income, and Product Accounts Tables: Table 1.1.1. GDP Growth Rate, BEA.
  • The Fed uses complex computer models to create its forecasts. But so many variables change in between estimates that it's difficult to be precise three years out. The critical thing to recognize is that the Fed doesn't think inflation will be a credible threat any time soon.

Article Sources

  1. Board of Governors of the Federal Reserve System. "What Is an Acceptable Level of Inflation?" Accessed Jan. 10, 2020.

  2. Federal Reserve Bank of St. Louis. "Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average." Accessed Jan. 10, 2020.

  3. Federal Reserve Bank of St. Louis. "How Monetary Policy Works." Accessed Jan. 10, 2020.

  4. Board of Governors of the Federal Reserve System. “Table 1. Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, Under Their Individual Assumptions of Projected Appropriate Monetary Policy, December 2019.” Accessed Jan. 10, 2020

  5. Bureau of Labor Statistics. “Consumer Price Index Database, All Urban Consumers.” Select "Top Picks" then "U.S. cities average, all items." On the next page select "More Formatting Options." Set starting year to 1929 and select "12-Month Percent Change." Accessed Jan. 10, 2020.

  6. Federal Reserve Bank of St. Louis. “Effective Federal Funds Rate,” Accessed Jan. 21, 2020.

  7. Federal Reserve Bank of New York. “Historical Changes of the Target Federal Funds and Discount Rates,” Accessed Nov. 19, 2019.

  8. Board of Governors of the Federal Reserve System. “Open Market Operations Archive,” Accessed March 16, 2020.

  9. Board of Governors of the Federal Reserve System. “Open Market Operations,” Accessed March 16, 2020.

  10. The National Bureau of Economic Research. “US Business Cycle Expansions and Contractions.” Accessed Jan. 10, 2020.

  11. Bureau of Economic Analysis. "National Income and Product Accounts." Accessed Jan. 10, 2020.

  12. Board of Governors of the Federal Reserve. “December 19, 2018: FOMC Projections Materials, Accessible Version.“ Accessed Jan. 10, 2020.