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November 1984, Vol. 107, No. 11
Inflation and the business cycle
during the postwar period
Inflation in both retail and primary markets has remained relatively low despite the rapid growth in economic output since the trough of the last recession in November 1982. In the ensuring 22 months of the current expansion, consumer prices have advanced at a 3.6-percent seasonally adjusted annual rate, with the 3 months ended in September increasing at a seasonally adjusted annual rate of 4.5 percent. In this article, we describe the behavior of prices in the current and previous business expansions and examine some of the major factors associated with those changes. It is our objective to provide historical context and perspective within which the reader may evaluate current price behavior and forecasts.
In the post-World War II period, the U.S. economy has undergone eight recessions in business activity.1 While these periods have evolved from different initial conditions, extended over varying periods of duration, and been subject to different external shocks and economic policies, they have been characterized by similarities in the qualitative behavior of prices. Table 1 summarizes the behavior of several measures of consumer price change for the recession peaks and troughs, and at selected dates of the subsequent business expansion. Tables 2 and 3 present selected changes in producer prices and labor costs for the same times.2 The first seven columns of the tables provide the data for each of the first seven recessions and expansions in the postwar era. The eighth column of data is the average of all seven recessions and expansions prior to the most recent. The ninth column is the average of the first six periods, because the expansion after the 1980 recession was only 12 months long. Consequently, the "expansion" measures for that period extend into the subsequent recession.
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1 As designated by the National Bureau of Economic Research, Inc., the turning points for the eight postwar recessions are:
|Recession||Peak (beginning of recession)||Trough (end of recession)|
|1948-49||November 1948||October 1949|
|1953-54||July 1953||May 1954|
|1957-58||August 1957||April 1958|
|1960-61||April 1960||February 1961|
|1969-70||December 1969||November 1970|
|1973-75||November 1973||March 1975|
|1980||January 1980||July 1980|
|1981-82||July 1981||November 1982|
2 Unless otherwise specified, all annual rates are based on 3-month price changes, The PPI for crude materials is highly volatile so annual rates for it are based on full 12-month changes. The unit labor cost and Employment Cost Index series are quarterly rates. Comparisons of turning points between series with different spans for calculating rates must be adjusted for the midpoints of the different spans. The analysis in this article, however, focuses on the comparison of each series to itself in different time periods and so, generally, avoids this problem.
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