Value of $100 in 1965, adjusted to 1981

What happened to prices between 1965 and 1981

Between 1965 and 1981, the Consumer Price Index went from 31.5 to 90.9. Cumulatively, prices increased 188.6%, which works out to an average of 6.85% per year. Put differently, a dollar in 1965 bought what $0.35 buys in 1981.

Consumer prices rose 1.6% in 1965, up from 1964’s 1.3% in a pickup that economists later mark as the start of the Great Inflation, a run of accelerating price increases driven by rising Vietnam War spending layered on top of new Great Society programs. The war itself escalated on the ground that March, when about 3,500 Marines came ashore at Da Nang, the first American combat troops committed to Vietnam; troop levels would climb toward 200,000 by year’s end. Domestic policy expanded just as fast: Medicare and Medicaid became law that July 30, creating federal health insurance for older and low-income Americans, and the Voting Rights Act, signed that August 6, banned literacy tests and other devices used to disenfranchise Black voters. The civil rights movement’s gains coexisted with urban unrest that same August, when a highway patrol traffic stop in the Watts neighborhood of Los Angeles set off six days of rioting that left 34 people dead. Consumer prices finished 1965 218.2% above their 1913 level. First-class postage held at 5 cents, and the minimum wage stayed at $1.25 an hour.

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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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