The chart above depicts the wholesale inflation rate from 1749-1980. The wonderful chart comes from The Wall Street Waltz by Kenneth L. Fisher manager of Fisher Investment and columnist at Forbes. What I would like to point out is that during this war we have experienced relatively little inflation. In fact, no other congressionally approved war except for Gulf War I did we not have to feel the consequences in the way of significantly higher prices at the pump and other basic necessities.
Please take a look at the rate of inflation before and after each warring period in U.S. history. During the period of the American Revolution inflation jumped 300%. During the War of 1812, inflation increased approximately 70%. The Civil War experienced inflation spike of 80%. World War I saw a surge of inflation by 115%. World War II had an increase of inflation of 100%. A small increase in inflation occured during the Korean War tallying a 12% jump which was a continuation of the WWII inflation. Finally, the Viet Nam War resulted in an inflationary spike of 290%.
What are the causes of these large spikes in inflation? The huge amount of government spending to finance each of these wars. The current war is no exception. Why didn't we get hit with high inflation during or after that last Gulf War? Government spending was put in check by a relatively quick end to the war. Also, the U.S. economy was in the middle of it's 18 year boom. While the booming economy wasn't a guarantee, in retrospect we could easily give an explantion as to the factors contributing to it.
Since we're not feeling the inflationary heat right now we can only expect that, at some point soon, we will experience inflation on the level of what happened during and after the Viet Nam War. If, for some reason, we're able to stave off inflation somehow I expect that we'll see the impact somewhere else in the world. Matters of inflation do not exist in a vacuum. Keep in mind that on every equation both sides need to be equal. The only difference in the world of economics is that it takes time for the equation to be reconciled.
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