1970’s All Over Again? Why This Time is Different


For those of us who remember the 1970’s, inflation was on the forefront of everyone’s minds. A trip to the grocery store or the gas station left your wallet hurting, and each time you went back, it seemed like things had gotten worse.

Sound familiar?

If not, you’re bound to be in much better spirits than the rest of us!

I’m here to tell you that the 2020’s are not the same as the 1970’s, despite how similar they may seem.

In 1980, year over year inflation hit a peak of 13.55%. For comparison, 2021 year over year inflation was just 7%.  Already, you can see how far apart these two numbers are, but when you take a deeper dive into the inflation crisis of the 70’s and early 80’s, the differences between that era, and the one we live in today, becomes crystal clear.

A quick interlude to provide some background on inflation: The U.S. Federal Reserve (Fed) has a general target for inflation to be around 2% per year in the long-term. In the long-term meaning that if inflation is 1% this year, but 3% next year, The Fed can live with that, because it averages out to 2% per year.

Alright. To fully understand how devastating 13.55% inflation was in 1980, you must consider the inflation from years prior. Between 1969 and 1983, inflation averaged out to 7.9% per year, almost 6% over the Fed’s target rate. To tie those percentages to reality, if you had a $100,000 salary in 1969, that same $100,000 salary would only buy you $37,021 worth of goods in 1983.

Let’s jump back into the present, where we saw prices rise 7% in 2021. Luckily, the previous decade has seen the U.S. experience extremely low inflation, meaning it hasn’t had the chance to compound as it did in the 1970’s. Additionally, if you look at inflation expectations released by the New York Federal Reserve Bank, you can see that the general sentiment is that inflation will begin to slow over the next few years, ultimately dropping to 3.5% by 2024. When you add these projections to the historical inflation data, and use the same timeframe as the example from the 70’s and 80’s, your $100,000 salary now buys you $68,719 worth of goods, and inflation over the period averages out to 3.05%, barely a percentage point over the Fed’s target rate.

As you can see, we have a long way to go before the 2020’s come anywhere near the 1970’s. To get to that point, inflation would need to continue to rise, not just for the next year or so, but for several more years. On top of that, it would have to persist at those inflated levels for close to a decade before we saw the type of turmoil that ripped through the country during the 1970’s.

Written by:  Ben Bulchik

These are the opinions of Ben Bulchik and not necessarily those of Cambridge, are for information purposes only, and should not be construed or acted upon as individualized investment advice.  Investing involves risk.  Depending on the types of investments, there may be varying degrees of risk.  Investors should be prepared to bear loss, including total loss of principal.  The strategies discussed herein are not designed based on the individual needs of any one specific client or investor.  In other words, it is not a customized strategy designed on the specific financial circumstances of the client.  However, prior to opening an account, Cambridge will consult with you to determine if your financial objectives are appropriate for investing in the model.  You are also provided the opportunity to place reasonable restrictions on the securities held in your account.

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* https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi

** https://tradingeconomics.com/united-states/inflation-cpi

*** https://research.stlouisfed.org/publications/economic-synopses/2021/10/07/overshooting-the-inflation-target

**** https://www.newyorkfed.org/newsevents/news/research/2022/20220214