1986 delivered the decade’s biggest one-year drop in inflation, and it came almost entirely from a single source: oil. Saudi Arabia abandoned its policy of restraining output to prop up prices, and world crude collapsed from about $27 a barrel to under $10 by midyear. Gasoline, which had averaged $1.12 a gallon in 1985, fell to 86 cents. With energy costs plunging, headline CPI inflation for the year came in at just 1.9%, the lowest annual rate since 1965 and a striking bookend to 1980’s 13.5% peak. The relief was uneven: prices for most goods and services outside energy kept rising at a moderate pace, so households that didn’t drive much or heat with oil felt less of the difference. In October, Congress passed the Tax Reform Act of 1986, a bipartisan overhaul that cut the top individual income tax rate from 50% to 28% while closing many deductions and shelters, the broadest rewrite of the federal tax code since World War II. Between cheap gas and falling interest rates, 1986 read like proof that the inflationary 1970s were a closed chapter, six years after the U.S. economy had felt anything but calm.
Year in review
Inflation in 1986
The U.S. inflation rate in 1986 was 1.9% (CPI: 109.6). Convert 1986 dollars to today →
1.9% 1986 inflation rate
5.6% 1980s average
3.9% peak month (Jan)
1.1% lowest month (Dec)
What things cost in 1986
| Median household income | $24,897 |
|---|---|
| Gas (per gallon) | $0.86 |
| Median home price | $92,000 |
| First-class stamp | $0.22 |
| Federal minimum wage | $3.35 |
What $100 from 1986 was worth later
| In 1990 | $119 |
|---|---|
| In 2000 | $157 |
| In 2010 | $199 |
| In 2020 | $236 |
| In 2026 | $303 |
Inflation in 1986, month by month
| Month | CPI-U | 12-month rate |
|---|---|---|
| January | 109.6 | 3.9% |
| February | 109.3 | 3.1% |
| March | 108.8 | 2.3% |
| April | 108.6 | 1.6% |
| May | 108.9 | 1.5% |
| June | 109.5 | 1.8% |
| July | 109.5 | 1.6% |
| August | 109.7 | 1.6% |
| September | 110.2 | 1.8% |
| October | 110.3 | 1.5% |
| November | 110.4 | 1.3% |
| December | 110.5 | 1.1% |
Economic events of 1986
- Oil prices collapse, dragging gasoline down by nearly a third Saudi Arabia abandoned its role as the market's swing producer and ramped up output that spring, and world crude prices fell from around $27 a barrel to under $10 by summer. The average price of gasoline fell to 86 cents a gallon for the year, down from $1.12 in 1985.
- Inflation falls to 1.9%, the lowest annual rate since 1965 Cheaper energy did almost all the work: with oil and gasoline prices collapsing, the CPI's energy component fell for the year even as prices for most other goods and services kept rising at a moderate pace.
- Congress passes the Tax Reform Act of 1986 The bipartisan overhaul, signed in October, cut the top individual income tax rate from 50% to 28% while eliminating many deductions and shelters, the broadest rewrite of the federal tax code since World War II.
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.