What Was the Consumer Price Index During World War I?

The Consumer Price Index (CPI) reflects the average change in prices paid by urban consumers for goods and services. This measurement helps understand inflation, a general increase in prices and a decrease in purchasing power. World War I significantly impacted the cost of living, introducing economic shifts that influenced price levels.

CPI Trends During World War I

Consumer prices in the United States increased substantially during World War I. Inflation was modest in 1914 and 1915, around 1 percent. This trend shifted dramatically as the war progressed, with the 12-month change in the CPI accelerating sharply in 1916, reaching double-digit percentages by October.

From December 1916 to June 1920, prices experienced an annualized increase of 18.5 percent, resulting in an overall rise of more than 80 percent. Nearly every component within the CPI, from food to housing and apparel, showed significant price increases. The 12-month increase in the CPI reached its peak at 23.7 percent in June 1920.

This widespread increase meant that the purchasing power of the dollar diminished. Even categories with slower growth, such as housing and fuel, were approximately 50 percent more expensive in 1920 compared to their 1915 levels.

Key Drivers of Price Changes

A primary driver of rising consumer prices during World War I was the immense increase in government spending to finance the war effort. Federal expenditures surged approximately fifteen-fold between 1916 and 1918, as the nation mobilized resources for military operations. This substantial outlay, totaling around $32 billion or 52 percent of the gross national product, was funded largely through increased taxes and extensive borrowing.

The government’s financial strategy included the Revenue Acts of 1917 and 1918, which raised income and excise taxes to cover approximately 31 percent of war costs. The remaining 69 percent, amounting to nearly $23 billion, was financed through the sale of war bonds. This government spending shifted national production priorities from civilian goods to military, creating an imbalance between supply and demand. The Federal Reserve’s lending practices at low interest rates, coupled with a large inflow of European gold, increased the money supply, fueling inflationary pressures.

Disruptions to global supply chains also played a role in escalating prices. The war complicated international trade routes and made procurement of goods more challenging. Countries sought to impede adversaries’ supply lines, exacerbating shortages of raw materials and finished products. This reduction in consumer goods availability, while demand remained high, led to upward pressure on prices.

Shifts in the labor market contributed to rising costs. As millions of individuals were enlisted into the military, the civilian labor force experienced a reduction. Unemployment rates fell from 2.2 million in 1914 to 200,000 in 1916, and to 1.2 percent during the peak of wartime labor demand. This scarcity of labor led to increased wage pressures, with average weekly earnings rising by 73 percent between 1917 and 1920. Higher labor costs were passed on to consumers as higher prices for goods and services.

Immediate Post-War Economic Landscape

The immediate aftermath of World War I brought about a complex and volatile economic environment, characterized by continued inflationary pressures followed by a sharp deflationary period. In 1919, consumer prices continued their upward trajectory, with the cost of living nearly doubling compared to 1916 levels by the end of that year. The 12-month increase in the CPI reached its peak at 23.7 percent in June 1920.

This post-armistice inflation was partly due to the rapid demobilization of troops, which strained the civilian labor market as veterans sought employment. Simultaneously, the government unwound its wartime economic controls, and industries transitioned from military to civilian goods. Public demand for consumer products, constrained during the war, surged, but production facilities struggled to recalibrate, leading to shortages.

However, this inflationary peak was short-lived. A severe economic contraction, the Recession of 1920–1921, followed. During this period, the CPI declined by more than 20 percent from June 1920 to September 1922. This sharp deflation was influenced by the Federal Reserve’s decision to raise its discount rates in late 1919 and early 1920, which contributed to a tightening of credit and a contraction of economic activity.