ReportforCongress-PolicyAlmanac.pdfVIP

Order Code RL30344 Report for Congress Received through the CRS Web Inflation: Causes, Costs, and Current Status Updated May 20, 2003 Gail Makinen Economic Policy Consultant Government and Finance Division Congressional Research Service ? The Library of Congress Inflation: Causes, Costs, and Current Status Summary Since the end of World War II, the United States has experienced more or less continuous inflation. It would be difficult to find a similar period in American history before that war. Indeed, prior to World War II, the United States often experienced long periods of deflation. It is worth noting that the Consumer Price Index in 1941 was virtually at the same level as in 1807. During the last economic expansion, March 1991-March 2001, the inflation rate remained low by historic standards. This is true regardless of which of the indexes is used to calculate the rate at which the price of goods and services rose. A low inflation rate is especially significant since the U.S. economy was fully employed, if not over fully employed, according to many estimates for the last 3 years of that expansion. Yet, contrary to expectations, the inflation rate showed little tendency to accelerate. Keeping an economy moving along a full employment path without igniting a burst of inflation is a difficult policy task. Because labor costs make up nearly two-thirds of total production costs, the rate at which they rise is often regarded as an indication of future inflation at the retail level. They tended to rise in the latter stage of the 1991-2001 expansion, but have moderated since then as the unemployment rate rises and labor markets ease.