April 2014

One hundred years of price change: the Consumer Price Index and the American inflation experience


Price change in the 1920s

Price controls were allowed to lapse shortly after the November 1918 armistice, although there was considerable sentiment to continue them. The economy was contracting as the war ended, and many feared serious postwar deflation and recession without some coordinated plan.12 However, the economy expanded in 1919, and prices continued to rise at a rate similar to that of the war period. Businesses rushing to rebuild depleted inventories and wage earners demanding and receiving cost-of-living increases based on high wartime inflation each contributed upward pressure on prices.13 Various price control instruments were created, the most notable of which was the local “fair-price committees.” These committees could establish fair prices for commodities and receive complaints against sellers for exceeding those prices. A 1919 New York Times article tells of sugar merchants confessing to selling sugar for 13 cents per pound and promising to issue refunds and sell for 11 cents per pound in the future.14 Despite the efforts of these committees, prices continued to rise, and government efforts to curb inflation were widely viewed as a failure. The following tabulation shows the trend in price changes over three distinct periods from July 1916 to September 1922:

NamePeriodAnnualized percent
change in All-Items CPI
War eraJuly 1916–November 191819.1
Postwar expansionNovember 1918–June 192017.3
RecessionJune 1920–September 1922-9.7

As it turned out, however, the feared postwar recession was only delayed, not avoided. Prices continued to rise sharply through June 1920, then abruptly started falling.

The recession of the early 1920s, while not remembered like the Great Depression of the next decade, was a severe one; indeed, it is sometimes termed a depression. Although it featured a significant drop in output and rise in unemployment, the recession is particularly striking for its extraordinary deflation: the CPI dropped more than 20 percent from June 1920 to September 1922, and wholesale price measures dropped even more sharply.

The 12-month increase in the CPI peaked at 23.7 percent in June 1920, just before prices turned downward. This rise exceeded the highs of both the post–World War II era and the early 1980s. The subsequent decline was sharp: the 15.8-percent drop from June 1920 to June 1921 represented a larger 12-month decrease than any registered during the Great Depression of the 1930s. So, it seems fair to say that the post–World War I era was the most volatile period of the last century for consumer prices.

After 1922, however, relative price stability reigned for the rest of the decade. Prices rose an average of 1.4 percent annually from 1922 to 1926, then fell an average of 1.1 percent annually from 1926 to 1929. The 12-month change in the CPI stayed between a rise of 4.1 percent and a decline of 2.8 percent for the entire period, a clear contrast to the double-digit increases and decreases seen from 1916 to 1922. Food prices showed a little more volatility, with a notable spike in 1925. The relative stability that held from 1922 to 1929 did not, however, mean that policymakers didn’t concern themselves with price changes: vigorous debates about prices and attempts at major regulation characterized the period. The agricultural sector did not recover as well as the rest of the economy did from the recession of the early 1920s. Foreshadowing later efforts, concern about inadequately low agricultural prices sparked attempts at regulation in the late 1920s. President Coolidge repeatedly vetoed the McNary–Haugen bill, which would have established agricultural price supports in an attempt to restore relative prices received by agricultural producers to their 1909–1914 average.


12 Rotwein, p. 238.

13 Ibid., p. 247.

14 “Compel 5 dealers to lower prices,” The New York Times, Sept. 9, 1919.

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About the Author

Stephen B. Reed

Stephen B. Reed is an economist in the Office of Prices and Living Conditions, Bureau of Labor Statistics.