By 1988, the economic expansion that began in the ashes of the 1981-82 recession was in its sixth year, and the Federal Reserve was watching for signs it had run too long. Inflation rose to 4.1%, up from 3.6% the year before, while unemployment fell to its lowest level since 1974. Alan Greenspan’s Fed responded by raising the federal funds rate through the year, from about 6.5% to 8.5%, trying to cool demand before prices accelerated the way they had in the 1970s. Households still felt the difference between this expansion and the last one: gas held near 90 cents a gallon, almost exactly its 1987 price, and median household income rose to roughly $27,200. The one price that moved was postage, which rose from 22 to 25 cents in April, the fourth increase of the decade but a far gentler pace than the string of increases in the late 1970s and early 1980s. In November, Vice President George H.W. Bush won the presidency on the strength of the expansion, promising in his nomination speech to hold the line on taxes. Both the boom and that pledge would run into trouble within two years, as the Fed’s rate increases helped tip the economy toward the 1990-91 recession.
Year in review
Inflation in 1988
The U.S. inflation rate in 1988 was 4.1% (CPI: 118.3). Convert 1988 dollars to today →
4.1% 1988 inflation rate
5.6% 1980s average
4.4% peak month (Dec)
3.9% lowest month (May)
What things cost in 1988
| Median household income | $27,225 |
|---|---|
| Gas (per gallon) | $0.90 |
| Median home price | $112,500 |
| First-class stamp | $0.25 |
| Federal minimum wage | $3.35 |
What $100 from 1988 was worth later
| In 1990 | $110 |
|---|---|
| In 2000 | $146 |
| In 2010 | $184 |
| In 2020 | $219 |
| In 2026 | $280 |
Inflation in 1988, month by month
| Month | CPI-U | 12-month rate |
|---|---|---|
| January | 115.7 | 4.0% |
| February | 116 | 3.9% |
| March | 116.5 | 3.9% |
| April | 117.1 | 3.9% |
| May | 117.5 | 3.9% |
| June | 118 | 4.0% |
| July | 118.5 | 4.1% |
| August | 119 | 4.0% |
| September | 119.8 | 4.2% |
| October | 120.2 | 4.2% |
| November | 120.3 | 4.2% |
| December | 120.5 | 4.4% |
Economic events of 1988
- First-class postage rises to 25 cents in April The increase, from 22 cents, was the fourth postage increase of the decade, still a far more moderate pace than the increases of the 1970s and early 1980s.
- The Fed raises interest rates through the year to head off inflation With inflation climbing to 4.1% and unemployment falling to its lowest level since 1974, Alan Greenspan's Fed pushed the federal funds rate from about 6.5% to 8.5% over the course of the year, trying to slow the economy before prices accelerated the way they had in the 1970s.
- George H.W. Bush is elected president in November Running on the strength of six years of economic expansion, Bush promised in his nomination speech, "Read my lips: no new taxes," a pledge that would collide with the deficit reduction he eventually signed into law in 1990.
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.