- Everyone is talking about inflation.
- Inflation. - Inflation.
- Inflation.
- [Narrator] It's the word that's been
on everyone's lips lately
and some are looking back at history.
- In fact, we've not heard inflation talked this much
since really the 1970s.
- [Narrator] That's because over the past few months,
prices for everything from gasoline
to groceries have been rising sharply
as the economy roars back from the pandemic recession.
This graph charts the consumer price index,
a metric that measures the average change in prices
for consumer goods and services compared
to a year ago, or more simply put, inflation.
In May of this year, prices spiked 5%
to reach the highest annual inflation rate
in nearly 13 years.
Many economists believe that a small amount
of inflation, around 2%, is inevitable
and even desirable.
That's essentially what we've had for the past 15 years
before this most recent surge.
But these recent increases have some fearing
that the US might be returning
to the runaway inflation of the 1970s.
- No one wants to see that happen again.
- [Narrator] So are we returning to the spiraling inflation
of the late 1960s and 1970s?
Or is today's inflation, as the Fed assures us, transitory?
- This is an extraordinarily unusual time.
(dramatic music)
- [Narrator] For those old enough to remember it,
the Great Inflation was a period
in which the cost of living
for millions of Americans soared.
From 1965 to 1982,
prices for food and everyday consumer items
rose dramatically from 2% in 1962 to 15% in 1979.
During that same period,
unemployment also rose steadily,
eventually reaching just above 10%.
The term stagflation, an economic condition
of both rising inflation and increasing unemployment,
became the go-to phrase
to describe the period's economic malaise.
This was a time when consumers protested rising meat prices,
unions members picketed for cost of living pay increases
and long lines for unemployment and gas became commonplace.
- [Reporter] Here in New Jersey,
10% of the workforce is unemployed.
Across the nation, the average is 8%.
- The main lesson from the '70s
is that kind of nagging, persistent,
recurring double-digit inflation
doesn't happen overnight.
It sets in over many years
and it's set in because of a long series
of policy mistakes in Washington.
(pensive music)
- [Narrator] Great Inflation has its roots
in the government spending of the 1960s.
Consumer prices began rising
under President Johnson
as he escalated the Vietnam War
and launched his Great Society social programs.
But the double-digit inflation the period is famous for
didn't begin until President Richard Nixon took office.
- The time has come for a new economic policy
for the United States.
- [Narrator] In 1971, Nixon ordered
that the dollar would no longer be backed by gold.
- Inflation robs every American, every one of you.
- [Narrator] Nixon also influenced
the Fed's monetary policy,
pushing the central bank
to pump more money into the economy
and keep interest rates low.
- By letting inflation rise gradually
for a number of years,
the Fed compromised the trust the public held
that the Fed would maintain price stability.
Businesses and households started expecting
that inflation would persist.
- As prices went up,
workers started pressing, in part for unions.
As wages went up,
companies started raising prices even more
and we got this game of leap frog
where prices and wages both went up.
- We must whip inflation right now.
- [Narrator] These policy missteps continued
under President Ford
and later under President Carter.
The issue was exacerbated further
by OPEC's oil embargoes.
- A more serious domestic problem,
that problem is inflation.
- [Narrator] It wouldn't be until President Jimmy Carter
appointed Paul Volcker as the Chairman
of the Federal Reserve
that the Great Inflation finally began to disappear.
- Paul Volcker, the Fed Chairman,
said I'm gonna stop this cycle
and he clamped down on the money supply,
jacked up interest rates.
It caused two very severe recessions
but that, it turned out to be,
really what needed to happen
to get inflation under control.
- [Narrator] Volcker's inflation crackdown
represented a new chapter for America's monetary policy.
- The 1960s and 1970s,
the Fed did not have
an articulated inflation targeting strategy
that inflation should be around 2%.
And so they were not focused
on keeping inflation under control.
- In the 1970s, the Fed was not even willing
to commit to what they meant by price stability.
It was kind of trust us, trust us, we will deliver,
which is a horrible policy.
(playful music)
- [Narrator] Today, we can see some clear similarities
between our modern inflationary period
and that of the 1970s.
Just like the '70s, prices are rising.
The Federal Reserve has increased the money supply
and government spending is up.
But comparing today's inflation
with that of the entire Great Inflation,
especially the 1970s, is not accurate.
- I graduated from college in 1975.
I had a front row seat.
I don't expect anything like that to happen.
- Today's inflation and the threat that we have
is actually like the last half of the 1960s.
It's not like the 1970s.
In the mid-1960s, inflation had been running about 2%.
By the end of the 1960s,
inflation went to about 5%.
The last inflation reading we had was still below 5%
and so you're nowhere near 20%,
which was the highest inflation reading
at the end of the 1970s.
There's almost no period in the 1970s
that had its inflation as low as we have now.
- Some of the recent spikes in inflation
are a very healthy sign of the recovery.
What we experienced last year wasn't normal.
Take airfares in the airline industry.
We have this dramatic drop of airfares.
That was a sign of the risk
that the whole industry would collapse.
It's a healthy sign that we see a reversal
of those increases today.
- [Narrator] For their part,
the Fed says it remains committed
to its long-held stance
that today's inflation is temporary.
- The Fed believes that what happened is supply shock.
And so that's causing shortages
and temporary price increases.
That's the Fed's theory.
- What we're seeing now, we believe is inflation
in particular categories of goods and services
that are being directly affected
by this unique historical event
that none of us has lived through before
called reopening the economy after closing it.
- Every time we have an economic recovery
from a recession, we expect to see inflation rise
above 2% for a while.
That's normal.
- If it turns out that these impacts
are more than transitory,
if they're lasting, they persist or even increase,
then the Fed might have to do something to stop it.
- [Narrator] On June 16th,
Federal Reserve officials signaled
that they expect to raise interest rates
by late 2023, sooner than they anticipated in March.
(pensive music)