The U.S. inflation rate by year shows how much prices for goods and services rise year-over-year.

The inflation rate typically reacts to phases of the business cycle, which is the natural cycle of expansion and contraction that the economy goes through over time.

The Federal Reserve has a target annual inflation rate of 2%, and it uses monetary policy to keep inflation in check and stabilize the economy when inflation rises above that benchmark.

What Is the Inflation Rate? 

The inflation rate is the percentage change in the price of products and services from one year to the next. Two of the most common ways to measure inflation are the Consumer Price Index (CPI) calculated by the Bureau of Labor Statistics (BLS) and the personal consumption expenditures (PCE) price index from the Bureau of Economic Analysis (BEA). The CPI measures the change in prices paid by U.S. consumers over time, and it is the most popular way to gauge inflation.

The year-over-year (YOY) inflation rate is calculated by subtracting the value of the CPI at the beginning of the year from the value at the end of the year. The result is then divided by the CPI value at the beginning of the year and then multiplied by 100 to get the inflation rate percentage. 

Why the Inflation Rate Matters

The inflation rate indicates the overall health of a country’s economy. It is used by central banks, economists, and governments to determine what action needs to be taken, if any, to stabilize the economy and keep it healthy. 

Policymakers at the Fed generally believe that an inflation rate of 2% (or slightly below) is acceptable for a stable economy that is healthy for both consumers and businesses. If the inflation rate drops too low and prices fall over a sustained period, it could cause deflation.

The decrease in consumer spending, slowing business activity, and high unemployment that comes with deflation can have severe long-term effects on a country’s economy. 

Rapidly rising prices and high levels of inflation can also bode poorly for the economy, as these changes often outpace wages, making products and services more expensive for consumers. This is why most central banks and governments closely monitor the annual inflation rate to ensure it is at a balanced and modest level, around 2% to 3%. 

U.S. Inflation Rates from 1929 to 2024

A simple way to understand inflation over time is to look at year-over-year rates calculated based on December CPI data.

While the United States has experienced a relatively low and stable inflation rate since the 1980s, inflation hit record highs in 2021 and 2022 in the wake of the pandemic. The year-over-year inflation rate was 7.0% at the end of 2021 and 6.5% at the end of 2022. At the end of 2023, it was 3.4%.

The table below shows the year-over-year inflation rate in the U.S. from 1929 to 2023. It also compares that rate with the federal funds rate, the phase of the business cycle, and important events that might have influenced inflation.

Year	Inflation rate YOY	Federal funds rate	Business cycle (gross domestic product [GDP] growth)	Events affecting inflation
1929	0.60%	NA	August peak	Market crash
1930	-6.40%	NA	Contraction (-8.5%)	Smoot-Hawley Tariff Act
1931	-9.30%	NA	Contraction (-6.4%)	Dust Bowl
1932	-10.30%	NA	Contraction (-12.9%)	Hoover tax hikes
1933	0.80%	NA	Contraction ended in March (-1.2%)	FDR’s New Deal
1934	1.50%	NA	Expansion (10.8%)	U.S. debt rose
1935	3.00%	NA	Expansion (8.9%)	Social Security
1936	1.40%	NA	Expansion (12.9%)	FDR tax hikes
1937	2.90%	NA	Expansion peaked in May (5.1%)	Depression resumed
1938	-2.80%	NA	Contraction ended in June (-3.3%)	Depression ended
1939	0.00%	NA	Expansion (8.0%)	Dust Bowl ended
1940	0.70%	NA	Expansion (8.8%)	Defense increased
1941	9.90%	NA	Expansion (17.7%)	Pearl Harbor
1942	9.00%	NA	Expansion (18.9%)	Defense spending
1943	3.00%	NA	Expansion (17.0%)	Defense spending
1944	2.30%	NA	Expansion (8.0%)	Bretton Woods
1945	2.20%	NA	February peak, October trough (-1.0%)	Truman ended WWII
1946	18.10%	NA	Expansion (-11.6%)	Budget cuts
1947	8.80%	NA	Expansion (-1.1%)	Cold War spending
1948	3.00%	NA	November peak (4.1%)
1949	-2.10%	NA	October trough (-0.6%)	Fair Deal; NATO
1950	5.90%	NA	Expansion (8.7%)	Korean War
1951	6.00%	NA	Expansion (8.0%)
1952	0.80%	NA	Expansion (4.1%)
1953	0.70%	NA	July peak (4.7%)	Eisenhower ended Korean War
1954	-0.70%	1.25%	May trough (-0.6%)	Dow returned to 1929 high
1955	0.40%	2.50%	Expansion (7.1%)
1956	3.00%	3.00%	Expansion (2.1%)
1957	2.90%	3.00%	August peak (2.1%)	Recession
1958	1.80%	2.50%	April trough (-0.7%)	Recession ended
1959	1.70%	4.00%	Expansion (6.9%)	Fed raised rates
1960	1.40%	2.00%	April peak (2.6%)	Recession
1961	0.70%	2.25%	February trough (2.6%)	JFK’s deficit spending ended recession
1962	1.30%	3.00%	Expansion (6.1%)
1963	1.60%	3.50%	Expansion (4.4%)
1964	1.00%	3.75%	Expansion (5.8%)	LBJ Medicare, Medicaid
1965	1.90%	4.25%	Expansion (6.5%)
1966	3.50%	5.50%	Expansion (6.6%)	Vietnam War
1967	3.00%	4.50%	Expansion (2.7%)
1968	4.70%	6.00%	Expansion (4.9%)
1969	6.20%	9.00%	December peak (3.1%)	Nixon took office; moon landing
1970	5.60%	5.00%	November trough (0.2%)	Recession
1971	3.30%	5.00%	Expansion (3.3%)	Wage-price controls
1972	3.40%	5.75%	Expansion (5.3%)	Stagflation
1973	8.70%	9.00%	November peak (5.6%)	End of gold standard
1974	12.30%	8.00%	Contraction (-0.5%)	Watergate
1975	6.90%	4.75%	March trough (-0.2%)	Stopgap monetary policy confused businesses and kept prices high
1976	4.90%	4.75%	Expansion (5.4%)
1977	6.70%	6.50%	Expansion (4.6%)
1978	9.00%	10.00%	Expansion (5.5%)
1979	13.30%	12.00%	Expansion (3.2%)
1980	12.50%	18.00%	January peak (-0.3%)	Recession
1981	8.90%	12.00%	July trough (2.5%)	Reagan tax cut
1982	3.80%	8.50%	November (-1.8%)	Recession ended
1983	3.80%	9.25%	Expansion (4.6%)	Military spending
1984	3.90%	8.25%	Expansion (7.2%)
1985	3.80%	7.75%	Expansion (4.2%)
1986	1.10%	6.00%	Expansion (3.5%)	Tax cut
1987	4.40%	6.75%	Expansion (3.5%)	Black Monday crash
1988	4.40%	9.75%	Expansion (4.2%)	Fed raised rates
1989	4.60%	8.25%	Expansion (3.7%)	S&L crisis
1990	6.10%	7.00%	July peak (1.9%)	Recession
1991	3.10%	4.00%	March trough (-0.1%)	Fed lowered rates
1992	2.90%	3.00%	Expansion (3.5%)	NAFTA drafted
1993	2.70%	3.00%	Expansion (2.8%)	Balanced Budget Act
1994	2.70%	5.50%	Expansion (4.0%)
1995	2.50%	5.50%	Expansion (2.7%)
1996	3.30%	5.25%	Expansion (3.8%)	Welfare reform
1997	1.70%	5.50%	Expansion (4.4%)	Fed raised rates
1998	1.60%	4.75%	Expansion (4.5%)	Long-term capital management crisis
1999	2.70%	5.50%	Expansion (4.8%)	Glass-Steagall Act repealed
2000	3.40%	6.50%	Expansion (4.1%)	Tech bubble burst
2001	1.60%	1.75%	March peak, November trough (1.0%)	Bush tax cut; 9/11 attacks
2002	2.40%	1.25%	Expansion (1.7%)	War on Terror
2003	1.90%	1.00%	Expansion (2.9%)	Jobs and Growth Tax Relief Reconciliation Act
2004	3.30%	2.25%	Expansion (3.8%)
2005	3.40%	4.25%	Expansion (3.5%)	Hurricane Katrina; Bankruptcy Act
2006	2.50%	5.25%	Expansion (2.9%)
2007	4.10%	4.25%	December peak (1.9%)	Bank crisis
2008	0.10%	0.25%	Contraction (-0.1%)	Financial crisis
2009	2.70%	0.25%	June trough (-2.5%)	American Recovery and Reinvestment Act
2010	1.50%	0.25%	Expansion (2.6%)	Affordable Care Act; Dodd-Frank Act
2011	3.00%	0.25%	Expansion (1.6%)	Debt ceiling crisis
2012	1.70%	0.25%	Expansion (2.2%)
2013	1.50%	0.25%	Expansion (1.8%)	Government shutdown, sequestration
2014	0.80%	0.25%	Expansion (2.5%)	Quantitative easing ends
2015	0.70%	0.50%	Expansion (3.1%)	Deflation in oil and gas prices
2016	2.10%	0.75%	Expansion (1.7%)
2017	2.10%	1.50%	Expansion (2.3%)
2018	1.90%	2.50%	Expansion (3.0%)
2019	2.30%	1.75%	Expansion (2.2%)
2020	1.40%	0.25%	Contraction (-3.4%)	COVID-19
2021	7.00%	0.25%	Expansion (5.9%)	COVID-19
2022	6.50%	4.50%	Contraction (-2.1%)	Russia invades Ukraine
2023	3.40%	5.50%	Expansion (+3.2%)	Fed raised rates

The Importance of Business Cycles: Expansion and Contraction

The inflation rate often responds to different phases of the business cycle, or the natural expansion and contraction that economies undergo over time. The business cycle has four phases: expansion, peak, contraction, and trough.

Expansions and Peaks

During the expansion phase, the economy experiences rapid growth. Interest rates tend to be low, and economic indicators related to growth such as employment, wages, output, demand, and supply of goods and services are generally trending upward. The inflation rate is usually at the acceptable level of around 2%. 

When the economy hits the maximum level of growth, it’s known as the peak, which marks the end of expansion and the beginning of contraction. Prices are typically at their highest in the peak stage of the business cycle, and inflation is also high. At this point, the Federal Reserve raises interest rates to cool inflation and slow down the economy, which leads to contraction.

Contractions and Troughs 

In the contraction phase of the business cycle, prices fall, growth slows, and employment declines. If this period of contraction lasts long enough, it can lead to a recession, which could in turn lead to deflation. As the economy continues to trend downward, it reaches the trough. This is the lowest point in the cycle, where prices bottom out before recovery and expansion begin again. Here, the inflation rate begins to rise and the cycle starts over. 

How the Federal Reserve Uses Monetary Policy to Control Inflation

The Federal Reserve uses monetary policy to control inflation as the economy goes through its cycle of expansion and contraction. The Fed focuses on the core inflation rate—which excludes food and energy prices, which are typically more volatile—to monitor inflation trends.

If the core inflation rate rises significantly above the Fed’s 2% target inflation rate, the Fed may tighten monetary policy to slow the economy by hiking the federal funds rate, or the rate at which banks lend to each other. Raising the fed funds rate influences interest rates and makes borrowing money more expensive for consumers and businesses.

Conversely, the Fed may decrease the discount rate—which is the interest rate for banks to borrow money from the Federal Reserve—to stimulate the economy and raise prices. A lower discount rate means that banks will lower the interest rate for customers as well, making it easier for consumers and businesses to borrow money. 

Other methods that the Federal Reserve may use to expand the economy include:

• Purchasing government securities
• Reducing the reserve requirement
• Engaging in open market operations, through which the Fed buys or sells U.S. Treasury securities on the open market

The Bottom Line

The inflation rate is an important metric to measure the overall health of the economy, which is why it is closely monitored by the Federal Reserve, government officials, and economists. The U.S. central bank uses it to inform monetary policy and what decisions must be made to keep inflation as close to the 2% annual inflation target as possible, including fostering a stable economy with steady supply and demand.