**Distribution of inflation rates in the U.S., 1914-1996**

Considering the year-to-year

percent changes in the Consumer Price Index (the *annual inflation rates*),

average annualized rate was 3.4%.

The lowest annual inflation rate was -10.5% (in 1921)

The highest annual inflation rate was 18.0% (in 1918)

It is probably more useful to consider the effects of 20 years of inflation,

rather than the distribution of annual inflation rates shown in the graph

below. For instance, for a retiree, a key question is what will happen

to the purchasing power of a fixed pension in 20 years? In the average

20 year period since 1913, prices have doubled. The most extreme period

was the one ending in 1985, when the CPI was 3.4 times as high as it was

20 years before.

If we consider the situation of someone who lives 30 years past

retirement, the distribution of price changes is even more dramatic. In

the average 30 year period since 1913, prices have increased by a factor

of 2.8. The most extreme period was the one ending in 1996, when the CPI

was 4.8 times as high as it was 30 years before. (The 30 year period ending

in 1997 will be the same.)

Note that the inflation rate for a year was defined as the percent change

between the previous year and that year. Example: the rate for 1914 was

defined as the percent change from 1913 to 1914.

Family Economics

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Sherman Hanna Updated 6/15/97