Deflating expectations

OECD Observer

Click to enlarge.

Barely a day goes by without a headline written about the end of inflation or even deflation. Looked at more closely, consumer price inflation has practically come full circle in the past 40 years, returning in the early days of the 21st century to the below 5% levels seen in the early 1960s, after spiralling into double digits in many countries in the 1970s and 1980s.

Inflation expectations also changed over the years, though. In fact the very first OECD Economic Outlook in 1967 – when inflation in all the major OECD economies was below 5% – wondered whether European countries were in danger of over-correcting the “excessive” inflationary pressures of the first half of the decade. These pressures pushed Italy’s inflation rate to 8% in 1963, for instance.

Just how high inflation could go was tested in the 1970s when the arrival of the first oil crisis compounded what the December 1973 Economic Outlook said was already an “extremely worrying” inflation picture and brought an end to “the strongest (economic) upswing since the Korean War”.

The following years saw inflation hit its highest level during the period, with Japan peaking at 23% in 1974 when the Outlook said that the effects of excessive demand buildup and the oil crisis were together “putting the economies of member countries to a test which is probably unprecedented outside of war.” By the following year economic recovery was beginning and inflation was seen “levelling out”, although the UK managed to register the highest annual inflation rate of major OECD economies over the entire 40-year period, at 23.7%.

By December 1980 when the oil price had risen 150% in the space of two years, the Economic Outlook was again warning that “the top priority for OECD countries is the reduction of inflation.” In particular it cautioned that US inflation was likely to remain “stubbornly high, at around 9-10%”, although with price rises of 13% that year the US was far from the worst performer, being outstripped by Italy with 21% and the UK with almost 18%.

When it came to the Gulf War in 1990-1991, OECD countries were less susceptible to a price shock. Inflation rose by less than many had expected, and generally stayed below 5% throughout the decade.

©OECD Observer No 235, December 2002

Economic data


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2017