Money & Finance › Bubbles, crashes & crises › Inflation: rising prices, shrinking purchasing power
The Great Inflation and 1970s stagflation
1965–1982· Crisis or event
Fact, law or dataA rule, statute, definition or measured number.
From 1965 to 1982 US inflation climbed in waves to 14.8%, often alongside high unemployment, a mix dubbed 'stagflation'.
See it on the Money & Finance map →How it works
It began in the late 1960s with Vietnam War and Great Society spending while the Fed kept money easy; chair Arthur Burns bent to pressure from Nixon. The 1971 end of the dollar's gold link removed an anchor, and wage-price controls only delayed rises. The 1973–74 Arab oil embargo and OPEC price hikes quadrupled oil prices, and Iran's 1979 revolution doubled them again. Unemployment hit 9% in 1975 while prices kept rising. CPI inflation peaked at 14.8% in March 1980.
Why it matters
It discredited the idea that a bit more inflation buys lasting jobs, made central-bank independence and inflation targets standard, and pushed mortgage rates to about 18% by 1981.
Think of it like
Like a market where every lease carries a CPI escalator: each price rise triggers the next, so once inflation is expected, it feeds itself.
Facts, rules and data
BLS CPI data, FOMC records, Burns's own 1979 lecture 'The Anguish of Central Banking', and Nixon White House tapes recording pressure on the Fed.
Debates and risks
Economists still weigh the shares of easy money, oil shocks, deficits and the end of gold; how far the 2020s resemble the 1970s is a live 2026 question.
Connections (4)
▸Paul Volcker and the 1979–82 inflation fight ended The Great Inflation and 1970s stagflationMainstream view
The connection
Volcker made fighting inflation the Fed's first job. Targeting money growth instead of rates let the federal funds rate climb near 20%, causing two recessions. The pain broke expectations that prices would keep rising: CPI inflation fell from 14.8% in March 1980 to about 3% by 1983.
When and why
Federal Reserve, Washington, from the October 6, 1979 'Saturday night special' meeting through 1982.
How solid is the link?
FOMC transcripts, BLS inflation data and Volcker's memoir 'Keeping At It' (2018); most economists credit the Fed's resolve.
Debates and risks
How much credit goes to Volcker versus falling oil prices and Reagan's political cover, and whether a gentler path existed, is debated.
▸Commodities: oil, metals and crops spiked during The Great Inflation and 1970s stagflationFact, law or data
The connection
Oil was the headline: the 1973–74 Arab oil embargo and OPEC price hikes quadrupled prices to about $12 a barrel, and the 1979 Iranian revolution pushed them toward $40. Grain and metals also surged. Because oil runs through transport, heating and production, these jumps raised costs across the economy and fed wage demands.
When and why
1973–74 and 1979–80, triggered by Arab OPEC members' embargo during the Yom Kippur War and by Iran's revolution.
How we know
Oil price records and BLS energy price data show the spikes, timed with the inflation peaks of 1974 and 1980.
Debates and risks
Whether oil shocks cause lasting inflation, or only when a loose Fed accommodates them, is debated; the 2026 shock revived the question.
▸The Phillips curve: inflation vs. unemployment broke down during The Great Inflation and 1970s stagflationFact, law or data
The connection
In the 1970s inflation and unemployment rose together, which the simple curve said should not happen. Oil shocks hit supply, and workers and firms came to expect inflation and built it into wages and prices. Friedman and Phelps had predicted this: holding unemployment low with easy money produces ever-higher inflation.
When and why
United States and Britain, 1973–1982; in 1975 US unemployment reached 9% with inflation near 9%, and in 1980 inflation hit 14.8%.
How we know
BLS data trace no stable curve in the 1970s; Friedman's December 1967 address forecast the breakdown before it happened, a rare successful prediction in economics.
Debates and risks
How much of the Great Inflation came from oil shocks versus Fed mistakes and political pressure on the Fed is debated.
▸Nixon shock: the dollar leaves gold (1971) removed a brake on The Great Inflation and 1970s stagflationExperts disagree
The connection
Under Bretton Woods, inflating faster than other countries drained US gold, a check on easy money. Closing the gold window in 1971, and floating exchange rates from 1973, removed that check. The dollar weakened, import prices rose, and the Fed faced no outside limit as inflation climbed.
When and why
Washington, August 15, 1971; general floating from March 1973; inflation passed 12% in 1974.
How solid is the link?
The timing is documented, but the causal link is debated; oil shocks and Arthur Burns's easy Fed policy also drove inflation.
Debates and risks
Some economists see the end of gold as central; most give more weight to Fed choices and oil, noting inflation was already rising before 1971.