Value of $100 in 1966, adjusted to 1974

What happened to prices between 1966 and 1974

Between 1966 and 1974, the Consumer Price Index went from 32.4 to 49.3. Cumulatively, prices increased 52.2%, which works out to an average of 5.39% per year. Put differently, a dollar in 1966 bought what $0.66 buys in 1974.

Consumer prices rose 2.9% in 1966, nearly double 1965’s 1.6% as Vietnam War spending kept climbing without an offsetting tax increase, pushing the economy closer to capacity and prices higher along with it. Medicare coverage took effect that July 1, extending federal health insurance to roughly 19 million Americans age 65 and older under the program signed into law the year before. The Federal Reserve had already moved to cool the overheating economy, raising its discount rate the previous December over White House objections; the tightening carried into 1966 as the first postwar credit crunch, freezing parts of the housing and municipal bond markets even as inflation kept climbing. Congress widened the wage floor’s reach that September 23, when the Fair Labor Standards Amendments of 1966 set a $1.40 minimum wage effective the following February and extended coverage to roughly 9 million more workers in retail, hospitals, schools, and other services not previously covered. Consumer prices finished 1966 227.3% above their 1913 level. First-class postage held at 5 cents, and the minimum wage stayed at $1.25 an hour for the rest of the year.

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The destination year: 1974

1974 was the year the postwar economy broke its old rules. Consumer prices rose 11.0%, the fastest annual increase since 1947, as the Arab oil embargo that ran from October 1973 to March 1974 roughly quadrupled the price of crude oil worldwide. Gasoline, which had averaged 38.5 cents a gallon in 1973, jumped to 53.2 cents, and shortages forced many states into odd-even rationing at the pump. Nixon’s wage and price controls, in place in some form since 1971, expired at the end of April, removing the last brake on prices just as the oil shock hit. Nixon himself resigned in August over Watergate, and Gerald Ford’s response to inflation, a voluntary “Whip Inflation Now” campaign built around lapel buttons, became a symbol of how little conventional politics could do against the problem. Prices kept climbing even as the economy weakened: a recession that started in November 1973 dragged on, the Dow fell to a bear-market bottom of 577.60 in December, and unemployment was already rising toward the 9% it would reach in 1975. The combination of rising prices and a shrinking economy gave the decade its name: stagflation.

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