Value of $100 in 1932, adjusted to 1981

What happened to prices between 1932 and 1981

Between 1932 and 1981, the Consumer Price Index went from 13.7 to 90.9. Cumulatively, prices increased 563.5%, which works out to an average of 3.94% per year. Put differently, a dollar in 1932 bought what $0.15 buys in 1981.

Consumer prices fell 9.9% in 1932, the steepest single-year drop in the CPI’s history to that point and the third straight year of decline following 1930 and 1931. Wages, farm incomes, and industrial output all kept falling, and Congress tried to arrest the credit collapse by creating the Reconstruction Finance Corporation that January, capitalized at $500 million with authority to borrow up to $1.5 billion to lend directly to banks, railroads, and other struggling businesses. Relief did not reach ordinary households as quickly. That summer, tens of thousands of World War I veterans and their families camped in Washington demanding early payment of a service bonus not due until 1945; in July, U.S. Army troops under General Douglas MacArthur forcibly dispersed the encampment, an episode that badly damaged the Hoover administration’s standing months before an election it was already losing. Voters delivered their verdict on November 8, electing Franklin D. Roosevelt in a landslide over the incumbent Hoover on a promise of relief and a “new deal for the American people.” Roosevelt would not take office until the following March, leaving a long and difficult transition during the depths of the crisis. First-class postage rose from 2 cents to 3 cents on July 6, the first change to the rate since 1919.

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The destination year: 1981

1981 was the year the inflation fever finally broke, at an extraordinary price. Consumer prices rose 10.3%, the second year of back-to-back double-digit inflation and the last time the U.S. would see one. To end it, Paul Volcker’s Federal Reserve drove its policy rate above 19% and let borrowing costs go where they may: a 30-year mortgage cost more than 18% by autumn, car loans and business credit froze, and homebuilders mailed the Fed two-by-fours in protest. The squeeze tipped the economy into recession in July, the deep 1981–82 downturn that would push unemployment past 10%. But it worked. Inflation fell by nearly half within a year and to under 4% by 1983, the disinflation that defined the following two decades. Even the price of mailing a letter told the year’s story: postage went up twice in eight months.

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