Value of $100 in 1929, adjusted to 1931

What happened to prices between 1929 and 1931

Between 1929 and 1931, the Consumer Price Index went from 17.1 to 15.2. Cumulatively, prices declined 11.1%, which works out to an average of -5.72% per year. Put differently, a dollar in 1929 bought what $1.13 buys in 1931.

Consumer prices were unchanged in 1929, the CPI’s annual average flat for the second time in six years and a fitting close to a decade that began with wartime inflation and ended in rough price stability. By year’s end the index stood 14.5% below its 1920 peak and roughly 73% above its 1913 starting point, a reminder that even a “stable” decade left prices well above where they had started. The stability in the cost of living masked what was building in financial markets. The National Bureau of Economic Research dates the start of the Great Depression to that August, the month the business cycle peaked, months before most Americans noticed anything was wrong. The break came that October: panic selling hit Wall Street on Black Thursday, October 24, and returned even worse on Black Tuesday, October 29, when the Dow Jones Industrial Average fell about 12% in a single session. Billions of dollars in paper wealth disappeared within days, and the crash marked the start of a downturn that would pull consumer prices into their steepest sustained decline of the 20th century over the next four years. First-class postage was still 2 cents, a price that would hold until 1932.

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The destination year: 1931

Consumer prices fell 9.0% in 1931, a sharp acceleration from the 2.3% decline in 1930, as falling wages, collapsing farm prices, and a fresh wave of bank failures fed a downward spiral that the still-contracting economy could not shake. More than 2,000 banks failed during the year, far more than in 1930, as depositors who had watched earlier banks go under pulled their cash out of ones they feared were next. The crisis went international that September, when Britain suspended the gold standard amid a run on sterling. The Federal Reserve’s response made the domestic downturn worse before it made anything better: to defend the dollar’s own gold backing, the Fed raised its discount rate sharply that October, in two steps from 1.5% to 3.5%, tightening credit at the exact moment the economy needed the opposite. Not every headline that year was grim. The Empire State Building opened its doors on May 1, briefly the tallest building in the world, though so much of Manhattan’s office space sat vacant amid the Depression that tenants stayed scarce and New Yorkers took to calling it the “Empty State Building.” Consumer prices had now fallen for two straight years and stood 53.5% above their 1913 level, down from the 68.7% margin of just twelve months before. First-class postage remained at 2 cents.

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