Report on the United States (1)

Abstract

The inflation problem in the United States is in many ways similar to that of most industrial countries. Inflation rates accelerated in the late 1960s primarily because of excess demand pressures. This process was followed by a large number of inflationary shocks in the 1970s, which were superimposed on the already high inflation rates. The new shocks included rapidly rising prices for food, raw materials, and more recently oil. The consequence has been inflation rates that are so high that there is little prospect of returning to pre-1960 price behaviour for a long time to come. Even if there are no new shocks or if some shocks reverse themselves in the near future — which seems unlikely — a strong inflationary process has been set in motion that will be extremely difficult to slow down. Wages and prices in the US will continue to respond to the large price increases in 1973 and 1974, and it will take the inflationary process a substantial amount of time to work itself out.

Associate Director, Division of Research and Statistics, Board of Governors of the Federal Reserve System, USA. The views expressed in this paper are my own and do not necessarily reflect those of the Federal Reserve Board or its staff. I wish to thank MaryAnn Graves for her help and advice in converting the original taped version of this talk into a form suitable for publication.