1987 tested whether the disinflation of the 1980s could survive its first real shock. Paul Volcker, who had run the Federal Reserve since 1979 and driven inflation down from 13.5% to routine mid-single digits, handed the chairmanship to Alan Greenspan in August. Inflation for the year came in at 3.6%, edging up as the expansion entered its fifth year and a weaker dollar, following 1985’s Plaza Accord, pushed up the price of imported goods. Then, on October 19, the stock market delivered Greenspan’s first crisis: the Dow Jones Industrial Average fell 22.6% in a single session, still the largest one-day percentage drop in its history, as computer-driven “portfolio insurance” trading amplified a global sell-off that had started days earlier. The Fed responded within 24 hours, publicly pledging to supply whatever liquidity the banking system needed, and the panic did not spread to the broader economy. Growth continued and unemployment kept falling through the rest of the year. It was an early demonstration of what became known as the “Greenspan put,” a Fed willing to move fast and loosen policy to contain financial shocks even while still watching inflation, that shaped central banking for the next two decades.
Year in review
Inflation in 1987
The U.S. inflation rate in 1987 was 3.6% (CPI: 113.6). Convert 1987 dollars to today →
3.6% 1987 inflation rate
5.6% 1980s average
4.5% peak month (Oct)
1.5% lowest month (Jan)
What things cost in 1987
| Median household income | $26,061 |
|---|---|
| Gas (per gallon) | $0.90 |
| Median home price | $104,500 |
| First-class stamp | $0.22 |
| Federal minimum wage | $3.35 |
What $100 from 1987 was worth later
| In 1990 | $115 |
|---|---|
| In 2000 | $152 |
| In 2010 | $192 |
| In 2020 | $228 |
| In 2026 | $292 |
Inflation in 1987, month by month
| Month | CPI-U | 12-month rate |
|---|---|---|
| January | 111.2 | 1.5% |
| February | 111.6 | 2.1% |
| March | 112.1 | 3.0% |
| April | 112.7 | 3.8% |
| May | 113.1 | 3.9% |
| June | 113.5 | 3.7% |
| July | 113.8 | 3.9% |
| August | 114.4 | 4.3% |
| September | 115 | 4.4% |
| October | 115.3 | 4.5% |
| November | 115.4 | 4.5% |
| December | 115.4 | 4.4% |
Economic events of 1987
- Alan Greenspan succeeds Paul Volcker as Fed chairman in August Volcker had spent nearly eight years breaking the back of the Great Inflation, at the cost of two recessions. Greenspan inherited an economy in its fifth year of expansion, with inflation creeping back up.
- Black Monday: the Dow falls 22.6% in a single day On October 19, the Dow Jones Industrial Average lost 508 points, still the largest one-day percentage decline in its history, as computer-driven "portfolio insurance" trading amplified a global sell-off. The Federal Reserve, in Greenspan's first crisis, pledged to supply liquidity to the financial system, and the economy avoided recession.
- Inflation rises to 3.6% as the expansion enters its fifth year The uptick came alongside continued economic growth and a weaker dollar, after 1985's Plaza Accord, that pushed up the price of imported goods.
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.