Value of $100 in 1931, adjusted to 2009

What happened to prices between 1931 and 2009

Between 1931 and 2009, the Consumer Price Index went from 15.2 to 214.537. Cumulatively, prices increased 1311.4%, which works out to an average of 3.45% per year. Put differently, a dollar in 1931 bought what $0.07 buys in 2009.

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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The destination year: 2009

2009 is the rarest kind of year in the modern price data: one where the cost of living went down. The CPI fell 0.4%, the first full-year deflation since 1955, as the Great Recession hollowed out demand and oil unwound from its $147 spike the summer before. Gasoline that had cost over $4 a gallon in July 2008 averaged $2.35 in 2009, and that energy collapse dragged the 12-month inflation rate to −2.1% by July, the deepest reading since 1950. Policymakers treated falling prices not as relief but as a warning: deflation raises the real weight of debt precisely when households are drowning in it, which is why the Federal Reserve pinned interest rates near zero, began buying bonds by the hundreds of billions, and Washington passed a $787 billion stimulus. The medicine took: prices stabilized within a year, and 2009 remains the textbook case of why central banks fear deflation more than moderate inflation.

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