Value of $100 in 1972, adjusted to 2021

What happened to prices between 1972 and 2021

Between 1972 and 2021, the Consumer Price Index went from 41.8 to 270.97. Cumulatively, prices increased 548.3%, which works out to an average of 3.89% per year. Put differently, a dollar in 1972 bought what $0.15 buys in 2021.

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: 2021

2021 was the year inflation stopped being background noise. Consumer prices rose 4.7% on average for the year, and the pace kept building as the months went on: by December, the 12-month rate had reached 7.0%, the highest since 1982. The proximate cause was a supply chain that could not keep up with a fast-reopening economy. A global semiconductor shortage choked new car production and pushed used vehicle prices up by more than a third, the single largest line item in the year’s inflation math. Lumber, appliances, and shipping capacity told versions of the same story: demand snapped back faster than factories, ports, and truckers could handle it. Washington added fuel in March with the $1.9 trillion American Rescue Plan, on top of the relief already in the pipeline since 2020. For most of the year, the Federal Reserve called the price surge “transitory,” a temporary reopening effect expected to fade on its own, and held its policy rate near zero. By November, with inflation still climbing, the Fed reversed course and began winding down its bond purchases, the first step toward the rate hikes that would follow in 2022. Gas averaged $3.01 a gallon for the year, up from about $2.17 in 2020, while the federal minimum wage held at $7.25, unchanged since 2009. In hindsight, 2021 reads as the hinge year: the point where “transitory” inflation became the multi-year fight the Fed spent the next two years trying to win.

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