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April 1982, Vol. 105, No. 4

Price changes in 1981:
widespread slowing of inflation

Craig Howell and Jesse Thomas

During 1981, inflation in both retail and primary markets slowed to the lowest pace since 1977. The Consumer Price Index for All Urban Consumers (CPI-U) moved up 8.9 percent, following increases of 13.3 and 12.4 percent in 1979 and 1980. All major categories of consumer spending, except medical care, registered smaller increases in 1981 than in the previous year. The moderation in the housing and transportation components, along with a sharp deceleration in the food and beverage index, were largely responsible for the slowdown in the overall CPI in 1981. (See table 1.)

The deceleration was especially apparent in prices for consumer goods, which rose only 6.0 percent, following an 11.1-percent advance in 1980. The slowdown was less dramatic for consumer services, from 14.2 percent in 1980 to 13.0 percent in 1981. Mortgage interest costs slowed to 20.0 percent after a 27.8 percent surge in 1980, but the index for services less mortgage interest costs rose almost 11 percent, virtually the same as in 1980. Because services are generally more labor-intensive than commodities, service charges tend to be slower to react to shifts in the general economy. The experimental CPI-U-X1, which incorporates the rental equivalence approach to homeownership costs instead of mortgage interest rates and home purchase prices, moved up 8.5 percent, compared with a 10.8-percent increase in 1980. Thus, the 1981 deceleration was greater for the official CPI than for the CPI-U-X1.¹

This excerpt is from an article published in the April 1982 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.

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