Why inflation was higher in the 1970s than today.
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Inflation, or the rate at which the general level of prices for goods and services is rising, was remarkably high in the 1970s. This era, commonly referred to as the “Great Inflation,” saw a sustained period of unprecedented and rapid inflation in many Western countries, including the United States. There are several key factors that contributed to the high inflation of the 1970s, which ultimately had a profound impact on the global economy.
One of the primary drivers of the high inflation during this period was the sharp increase in oil prices. In 1973, the members of the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo on the United States and other countries that supported Israel during the Yom Kippur War. This led to a severe shortage of oil and a significant increase in its price. As a result, the cost of production and transportation for goods and services soared, leading to higher prices for consumers.
Furthermore, the 1970s also saw a surge in global food prices. Poor harvests caused by adverse weather conditions and other factors led to a shortage of key staples such as wheat and soybeans. This, coupled with the increased demand for food due to population growth, further fueled inflationary pressures.
Another important factor contributing to the high inflation of the 1970s was the expansionary monetary policies pursued by many central banks. In an effort to stimulate economic growth and reduce unemployment, governments around the world opted for loose monetary policies, effectively increasing the money supply. This flood of easy credit led to more spending and investment, which in turn drove up prices.
Moreover, the 1970s witnessed a significant decline in productivity growth, which had traditionally helped to keep inflation in check. Many factors contributed to this, including rising labor costs, energy shortages, and disruptions caused by labor strikes. As productivity stagnated, the cost of producing goods and services increased, leading to higher prices for consumers.
The high inflation of the 1970s had far-reaching consequences for the global economy. It eroded the purchasing power of consumers, reduced real wages, and resulted in a general decline in living standards. Additionally, it created uncertainty for businesses, making it difficult for them to plan and invest for the future. The high inflation also forced central banks to adopt tighter monetary policies, which in turn contributed to higher unemployment rates.
In conclusion, the high inflation of the 1970s can be attributed to a combination of factors, including the sharp rise in oil and food prices, expansionary monetary policies, and declining productivity growth. The impact of this inflationary period was felt across the global economy, leading to significant challenges for policymakers and businesses alike. Ultimately, the lessons learned from this era have helped to shape economic policies and strategies aimed at maintaining price stability and sustainable growth.
Dear Tejvan, or anyone else! There is an online article I read recently (not necessarily a recent article), which I cannot now locate, that illustrates, and details, how strong unions during the 1970s increased pay rates on average, to actually above then extremely high inflation, overall i.e. at the start of the 1970s most workers were very poor, including even skilled trades, however by the end of the '70s living standards had hugely increased, as pay actually increased more than inflation, both CPI and RPI, effectively bringing the UK to a level near or equal to many developed higher income countries which it had not been before. e.g. there was money in the economy due to spending power via most people rather than only the middle and upper classes, that had not previously existed. If it wasn't for this, the UK may still be at an underdeveloped nation level for the majority of the population. Yet strong unions in the media get blamed for damaging the UK economy, when it appears the opposite was actually the case, with many 'working class' people now considering themselves effectively middle class (two cars, meals out, travel, holidays, that most, even lower middle class, previously couldn't afford or were rare luxuries? Do you or does anyone know where I can find this article / blog please? Many thanks.
What about fiscal policy? which is driving inflation up because governments especially in the states are still relying on debt monetization to cover their annual budget expenditures such as social security and medicare, how can this not have a continued effect in inflation going up when the FED continues to issue debt
Is any political war or issues effect the inflation rate to go higher ?
You hit the nail right on the head .. it’s all about oil. M King Hubbert predicted all of what is happening now back in the 1950’s .. look up his interview.. but I’m not so optimistic about your future predictions being that I’m of the opinion that we have just passed peak oil and are now looking at the slippery down hill side of the production bell curve .. there is a lot of signs that we have entered this new uncharted chapter of human history. North Sea oil platforms returning to Scotland. Strategic petroleum reserves lowest levels in forty year. Saudi’s selling their oil companies. Macron the time of abundance is over. Inflation just burst to sky hight levels overnight. Airports canceling flights. Supply chain shipping problems. The pandemic shutdown. China still shut down. High inflation high interest rates. And it’s the exact time that Hubbert predicted that global oil production would peak and then start its decline.. he nailed it for the 1970’s for America 20 years before it happened and was laughed at.. we will never run out they said.. and they have known for decades that this point in time was coming.. why do you think they invented the global warming hoax.. it was to get the world moving into the renewable energy system before it was to late and they have been pouring billions into fusion technology in the hope that it will save us.. without the oil .. well .. back to the horse and buggy days. And the population size to go with it.
Before the 70's, families were supported by one working adult person in the household, who could earn enough to buy a house and pay for day to day living and all costs.
Today it is the common thing for both adults in the family to work, some of the time their wages are not enough and they need to be supported by the government with tax credits.
Did inflationary pressures from the 70's reduce the standard of living for the UK economy and could we see something similar moving forward over the next few decades.
Thanks