How did inflation manifest in the 70s?

[Flooble]

We can look at statistics, but they don't really tell the whole story as they are mostly talking about annual rates.

For anyone who can remember, how did prices go up in the 1970s? Was it a little bit each week, or were they big jumps every quarter?

I'm interested in seeing how the current rate of inflation plays out. Looking at almost everything that is now crazy expensive there seems to have been one big jump (essentially double for lots of materials I am looking at) as well as lots of little increments since the initial "crisis". I'm intrigued if that's how inflation played out in the 1970s. E.g. big jump at the Oil Crisis but also lots more every week right through to the 1980s.

[Eric Mc]

It was generally a steady and relentless rise but there was the odd blip. The big impetus came, as you say, with the fall out from the Arab-Israeli War of October 1973 which resulted in OPEC deliberately ramping up oil prices.

There already had been upward pressures growing since round 1971 partly being due to wage increase pressures from the manufacturing sector and nationalised industries.

[The Leaper]

I remember that at in the mid 70s the annual interest rate for my repayment mortgage was a mere15% or so.

R.

[Eric Mc]

Inflation itself peaked around 1975 or so at rates in the order of 28%. It was still high right through most of the 1980s. Interest rates followed suit.

[TwigtheWonderkid]

Decimalisation didn't help. Mainly because so many shopkeepers or punters hadn't grasped it. A matchbox car, which was 3 shillings on 14/2/71, should have been 15p the next day, was actually 30p in my local shop, because "3 shillings is now 30p". A lot of prices were miscalculated upwards and never came back down again.

[Scootersp]

Interesting read

https://www.investopedia.com/articles/economics/09...

Secrets of the Temple: How the Federal Reserve Runs The Country published 1989 reports Nixon as saying: "We'll take inflation if necessary, but we can't take unemployment." not dissimilar to now?

Volcker 'fixed' the inflation then by high interest rates...

https://www.thebalance.com/who-is-paul-volcker-330...

But imagine a 5% interest rate let alone 20% now, we are boxed in a corner on that front, rate increases and you risk (ensure?) stock and property market crashes? I suppose we have to hope inflation really is transitory........if it isn't there aren't many happy ending scenarios?

Edited by Scootersp on Wednesday 11th August 10:52

[Scootersp]

US figures...........

The key money creation number, M1, which is total checking deposits, demand deposits
and traveler's checks, went from $228 billion to $249 billion between December 1971 and December 1972 (reported as significant then)


M1 was $1.153 trillion in September of 1994. It did not exceed that amount until it hit $1.208 trillion in September of 2001.

It rose to $4-5 Trillion by 2020, and now stands at nearly $20 Trillion (and doubt that includes the amount below?)

Democratic and Republican senators passed a $1.2 trillion infrastructure bill Tuesday morning (10th August)

So that's a (now mundane) $1.2 trillion on top of all the others since Covid and this one stimulus package matches all the M1 in 2001?

I'm not sure what it means or the precise consequences but it doesn't sound good/sustainable?

But then I don't feel much different now compared to 2001 so perhaps they can be at 100 Trillion in a year of two then in Quadrillions what's the problem!? (NB I don't think we or Germany etc etc are doing much different?)

[Flooble]

Interesting to read about Nixon's economic adjustments, as it were.

I wonder if we are in for another ten years of double digit inflation, but without any interest rate rises. Or pay rises.

[Scootersp]

Which in our general indebted position (personal and companies) is potential disaster for a large number of people?

This link from 2018 and so pre covid
https://www.theguardian.com/money/2018/jul/26/hous...

[Flooble]

Scootersp said:

Which in our general indebted position (personal and companies) is potential disaster for a large number of people?

This link from 2018 and so pre covid
https://www.theguardian.com/money/2018/jul/26/hous...

Not necessarily; if interest rates don't rise (as noted in your article it took a changing of the guard for interest rates to be wound up) then the debt can still be serviced. However, if food and basics start to rocket upwards without pay going up to match, that could hurt. Hence I was interested in how it played out in the 70s. If each week your tin of beans cost an extra 10p but you only got one pay rise a year, that would presumably be fairly uncomfortable.

[46and2]

Were Nixon's interventions facilitated by the US coming off the Gold standard?

Maybe we could go to a Crypto standard.

[FiF]

Speaking just of the impression of how it appeared in normal family life. From memory of 70s, and in particular early 80s, first house bought 1980, a year seemed to split into two parts. Just after an annual pay round family finances got into a more stable situation, even though you were just catching up with inflation plus a bit, promotions / career changes made life easier, but then in the second part of the year things got tighter, and at times we used to wonder at the end of the month where the money had gone. Day to day inflation was continuing, salary not, until next pay round. When life would appear to get easier as above. Fortunately Mrs F was, and still is, a whizz with household money management, kept a tight rein in first half of year, so that the second wasn't such an apparent struggle.

On the other hand, yes the mortgages were based on high interest rates compared to today, but after only a few years the mortgage payment was a much smaller % of the monthly budget. Until you moved house.

Having said that I remember one of my bosses around 1975 went skiiing, in Switzerland, came back moaning like hell about prices and one thing that has stuck in the memory was his "Nine bob for a f*cking Mars Bar, 9 f*cking shillings"

Well 9 shillings converts in decimal to 45 pence. How much is a Mars Bar today. 60 pence for 51g. Very similar weight to 1980 apparently, @ 49g.
I think it was then 3p, rising to 5p in UK after decimalisation. Others can work out whether we are more wealthy using the Mars Bar standard. CBA.

[Scootersp]

Flooble said:

Not necessarily; if interest rates don't rise (as noted in your article it took a changing of the guard for interest rates to be wound up) then the debt can still be serviced. However, if food and basics start to rocket upwards without pay going up to match, that could hurt. Hence I was interested in how it played out in the 70s. If each week your tin of beans cost an extra 10p but you only got one pay rise a year, that would presumably be fairly uncomfortable.

I don't fully understand it all but the impression I got was the interest rate rise was necessary to stop/curb the inflation, ie back then higher interest rates were the (painful) solution to the increasing inflation............so what choice now?

[Scootersp]

46and2 said:

Were Nixon's interventions facilitated by the US coming off the Gold standard?

Maybe we could go to a Crypto standard.

The coming off the standard allowed the constant expansion of money supply is my understanding.

[Flooble]

Thanks - the anecdote from FiF was interesting. That was somewhat how I imagined it must have been. I guess that could be how all this blows up - people just running out of money as their previously comfortable salary (at the start of the year) now won't cover the cost of a tin of beans. And once all the price gouging has been done, everyone will be poorer so their employers will be in no position to offer interim pay rises. I assume there weren't three-monthly pay review cycles in the 70s?

[condor]

TwigtheWonderkid said:

Decimalisation didn't help. Mainly because so many shopkeepers or punters hadn't grasped it. A matchbox car, which was 3 shillings on 14/2/71, should have been 15p the next day, was actually 30p in my local shop, because "3 shillings is now 30p". A lot of prices were miscalculated upwards and never came back down again.

I would also say Decimalisation was a big cause of doubled up prices, for the same reasons as mentioned above. Also the confusion in paying for gallons of petrol were changed to paying for litres, which also allowed for higher price increases.

[L1OFF]

I remember the early 80's very well, high mortgage rate (peaked at 17% IIRC) some days missing meals to feed the kids.

[Eric Mc]

condor said:

I would also say Decimalisation was a big cause of doubled up prices, for the same reasons as mentioned above. Also the confusion in paying for gallons of petrol were changed to paying for litres, which also allowed for higher price increases.

That was pretty unique to Britain and Ireland - who both went "decimal" on 15 February 1971. However, inflation affected many, many countries outside of the UK and Ireland. As I said earlier, the main issue was the massive and sudden ramping up of oil prices by OPEC in late 1973/early 1974. Not only did it cause instant inflation, it also was a major blow to western economies.

The UK was particularly vulnerable because many of its long established industries were becoming obsolete and were poorly run with poor management and out of date practices - and consequently were riven by industrial unrest. The sharp rise in inflation caused wages demands to soar - followed by industrial strife as workers and the unions became more militant. It was a pretty bleak time.

[Scootersp]

Inflation can feed on itself if it gets noticeable to people.

https://www.investopedia.com/terms/i/inflationaryp...

[Pete54]

I was training during the early 70s and thanks to a pretty good union agreement we actually got 3 monthly pay rises!

And frankly they were needed. Later on with my first house the interest rates were pretty horrible and my mortgage was head and shoulders higher than anything else I spent. Essentially most of my money went on the mortgage. By the middle 80s things were settling and the blessed Margaret tackled the unions. Frankly it was not a good time - personally I think it had to be done - but her legacy is very black and white - depending on which side you were on.

The prospect of getting anywhere near the inflation of the 70s should scare anyone to death. I had few responsibilities but with a family and ongoing commitments and the re-structuring of much of the old British industries it was a bloody time.