Value of $100 in 1972, adjusted to 1974

What happened to prices between 1972 and 1974

Between 1972 and 1974, the Consumer Price Index went from 41.8 to 49.3. Cumulatively, prices increased 17.9%, which works out to an average of 8.60% per year. Put differently, a dollar in 1972 bought what $0.85 buys in 1974.

Consumer prices rose just 3.2% in 1972, the calmest year of the decade and a sharp break from the previous two years. The relief was largely engineered: Nixon’s wage and price controls, imposed as a 90-day freeze in August 1971, had settled into a series of “phases” that capped how much businesses could raise prices through the election year. Economists would later argue the controls mostly deferred inflation rather than curing it, storing up pressure that broke loose once they were lifted. Nixon spent political capital on foreign policy that year, traveling to Beijing that February in the first visit by a sitting U.S. president to the People’s Republic of China, a trip that began normalizing relations Washington had frozen since 1949. Closer to home, five men were arrested breaking into the Democratic National Committee’s offices at the Watergate complex that June 17, an event that drew little attention at the time but would eventually force Nixon from office. None of it dented his re-election bid: Nixon carried 49 states against Democrat George McGovern that November, helped by an economy that, on paper, looked more stable than it had in years. A median household earned $9,697 in 1972, a new home sold for a median $27,600, and gas held near 36 cents a gallon for a third straight year. Consumer prices stood 322.2% above their 1913 level, a lull that would not survive contact with the controls’ expiration and the oil shock still to come.

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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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