By 1985, low inflation had become the norm rather than the exception. Consumer prices rose 3.6% for the year, the fourth straight year in the 3-6% range following the double-digit spikes of 1980 and 1981, proof that the disinflation had held rather than merely paused, as it had after previous recessions. Overseas, the dollar had become a problem of its own: years of high U.S. interest rates had pulled in foreign capital and pushed the dollar’s value up so far that American exporters were losing business abroad, widening the trade deficit. In September, the finance ministers of the U.S., Japan, West Germany, France, and the United Kingdom met at New York’s Plaza Hotel and agreed to coordinate a managed decline of the dollar; it fell roughly 25% against major currencies over the following two years. At home, Congress responded to a federal deficit that had roughly tripled since 1980 by passing the Gramm-Rudman-Hollings Act in December, setting binding targets to shrink the deficit with automatic across-the-board cuts if lawmakers missed them. Households felt the calmer economy in small ways: first-class postage rose to 22 cents in February, its first increase since November 1981, after nearly four years at 20 cents.
Year in review
Inflation in 1985
The U.S. inflation rate in 1985 was 3.6% (CPI: 107.6). Convert 1985 dollars to today →
3.6% 1985 inflation rate
5.6% 1980s average
3.8% peak month (Dec)
3.1% lowest month (Sep)
What things cost in 1985
| Median household income | $23,618 |
|---|---|
| Gas (per gallon) | $1.12 |
| Median home price | $84,300 |
| First-class stamp | $0.22 |
| Federal minimum wage | $3.35 |
What $100 from 1985 was worth later
| In 1990 | $121 |
|---|---|
| In 2000 | $160 |
| In 2010 | $203 |
| In 2020 | $241 |
| In 2026 | $308 |
Inflation in 1985, month by month
| Month | CPI-U | 12-month rate |
|---|---|---|
| January | 105.5 | 3.5% |
| February | 106 | 3.5% |
| March | 106.4 | 3.7% |
| April | 106.9 | 3.7% |
| May | 107.3 | 3.8% |
| June | 107.6 | 3.8% |
| July | 107.8 | 3.6% |
| August | 108 | 3.3% |
| September | 108.3 | 3.1% |
| October | 108.7 | 3.2% |
| November | 109 | 3.5% |
| December | 109.3 | 3.8% |
Economic events of 1985
- First-class postage rises to 22 cents in February The rate had held at 20 cents since November 1981, nearly four years without a change, an unusually long stretch after the frequent increases of the 1970s.
- The Plaza Accord: G5 nations agree to weaken the dollar Meeting at New York's Plaza Hotel in September, finance ministers from the U.S., Japan, West Germany, France, and the United Kingdom agreed to coordinate intervention to push down the dollar, which had risen so much since 1980 that it was widening the U.S. trade deficit. The dollar fell roughly 25% against major currencies over the following two years.
- Congress passes the Gramm-Rudman-Hollings Act in December The law set binding annual targets for shrinking the federal budget deficit, with automatic across-the-board spending cuts if Congress missed them, the decade's most direct legislative attempt to address a deficit that had roughly tripled since 1980.
- Inflation holds at 3.6%, its fourth straight year in the 3-6% range The steady run of moderate readings after the double-digit spikes of 1980 and 1981 was evidence that the Great Inflation had genuinely ended rather than merely paused, as it had after previous recessions.
Sources: U.S. Census Bureau, Current Population Survey (income); U.S. Census Bureau, New Residential Sales (home price); U.S. Energy Information Administration (gasoline); U.S. Department of Labor (minimum wage); USPS historical rates.
Inflation figures: U.S. Bureau of Labor Statistics, CPI-U annual averages. See the methodology.