Value of $100 in 1917, adjusted to 2021

What happened to prices between 1917 and 2021

Between 1917 and 2021, the Consumer Price Index went from 12.8 to 270.97. Cumulatively, prices increased 2017.0%, which works out to an average of 2.98% per year. Put differently, a dollar in 1917 bought what $0.05 buys in 2021.

1917 is when World War I inflation stopped being a background trend and became the dominant fact of American economic life. Consumer prices rose 17.4% for the year, more than double the previous year’s already sharp increase, as the country’s April 6 entry into the war layered federal war spending on top of an economy already strained by military demand and worker shortages. Congress paid for the war with the War Revenue Act that October, which sharply raised income taxes, created a new tax on wartime business profits, and, in a small but very visible change for ordinary households, raised the cost of a first-class stamp from 2 cents to 3 cents that November, the rate’s first move since 1885. Herbert Hoover took over the new Food Administration in August and asked Americans to conserve food voluntarily rather than face formal rationing, a campaign that became famous enough that “Hooverize” entered the language as a verb for cutting back. None of it slowed prices much: the 17.4% increase would be topped again the very next year, in 1918.

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The destination year: 2021

2021 was the year inflation stopped being background noise. Consumer prices rose 4.7% on average for the year, and the pace kept building as the months went on: by December, the 12-month rate had reached 7.0%, the highest since 1982. The proximate cause was a supply chain that could not keep up with a fast-reopening economy. A global semiconductor shortage choked new car production and pushed used vehicle prices up by more than a third, the single largest line item in the year’s inflation math. Lumber, appliances, and shipping capacity told versions of the same story: demand snapped back faster than factories, ports, and truckers could handle it. Washington added fuel in March with the $1.9 trillion American Rescue Plan, on top of the relief already in the pipeline since 2020. For most of the year, the Federal Reserve called the price surge “transitory,” a temporary reopening effect expected to fade on its own, and held its policy rate near zero. By November, with inflation still climbing, the Fed reversed course and began winding down its bond purchases, the first step toward the rate hikes that would follow in 2022. Gas averaged $3.01 a gallon for the year, up from about $2.17 in 2020, while the federal minimum wage held at $7.25, unchanged since 2009. In hindsight, 2021 reads as the hinge year: the point where “transitory” inflation became the multi-year fight the Fed spent the next two years trying to win.

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