Time, Oil Prices, & Inflation: The History Of The U.S. Economy In The Last 50 + Years
When I started driving in 1969, the average cost of a gallon of gas was $0.35. Adjusted for inflation in 2021 dollars, the cost would be $1.79. My after school and summer job as a cook paid $2.50 an hour “off the books,” and the minimum wage in New York was $1.60 an hour. My father was making $75 a week plus another couple of hundred in tips from his restaurant job.
In high school, I don’t remember hearing about inflation. Things usually cost the same from year to year. The same went for most of my college years. Inflation only began to be all encompassing in 1973 with the oil embargo after the Yom Kippur war between the Arab states and Israel. Once OPEC raised oil prices and cut exports, heating oil jumped through the roof as did every commodity and manufactured good.
The U.S. was importing 6 million barrels of oil a day by 1973. With only 6% of the world’s population, we were using 33% of the world’s oil output. Our energy consumption was wasteful to say the least. Inflation would continue to sour our economy and that of the entire world until the 1980s.
America finally went to war with inflation and after a deep recession broke the “wage-price spital” that was affecting not only us but all nations. The U.S. and Europe began a series of energy reduction strategies that lessened our reliance on Mideast oil. We saw then, as we have now, that the cost of oil and inflation is not tied to any one policy but an effect from a cause. In both cases, it was precipitated by a war. In 1973 it was a war between Israel and the Arab states and today between Russia and Ukraine.
The Federal Reserve is raising interest rates today which was the same action they took in the early 1980s. Today the United Kingdom is looking at inflation of 20%…much higher than what we are facing in the U.S. This is not a problem caused by any one administration or policy. As is usual in these circumstances, outside economic forces cause inflation.
Already we have seen the cost of gas coming down precipitously in the U.S. Even with the OPEC production cut announced, we shouldn’t see a return to increased prices. On the other hand, natural gas prices may continue to rise because it is the predominant heating fuel for Europe. Gas unlike oil is dependent on pipelines between producer and consumer and therefore subject to a more local and regional market.
With the Fed tightening, oil prices may continue to drop here because demand will fall. The trick will be to not plunge the economy into a recession.