Table of Contents

What causes high inflation?

The mechanics of inflation

The highest inflation rate in U.S. history

U.S. inflation rate history

Countries with the highest inflation rates 

The bottom line

LearnInflationThe Highest Inflation Rate Ever

The Highest Inflation Rate Ever

Oct 14, 2022


6 min read

Inflation is part of the ebb and flow of the business cycle. The highest inflation in the U.S. often has been tied to wars in this country or crises in other countries.


measures how much the prices of goods and services are rising. It is a closely watched barometer of a nation’s economic health. A moderate rate of inflation can spur spending in anticipation of rising prices, stimulating economic growth, but too much inflation can erode purchasing power and lower living standards. Throughout history, there have been several times when inflation spiked, often during times of war.

What causes high inflation?

High inflation is caused by a rapid increase in prices of goods and services. There are several forces that can contribute to this. One is when consumers have increasing amounts of money to spend and their demand outstrips existing supplies, a phenomenon called demand-pull inflation. The cost of producing goods can also increase, and producers will raise their prices to absorb higher production costs, called cost-push inflation. Inflation can also be caused when a country’s central bank injects money into an economy to cover national deficits or if it overshoots in efforts to stimulate the economy. 

These types of inflation can exist simultaneously and reinforce one another. For instance, inflation in 2022 was caused by COVID-19 pandemic-related disruptions in global supply chains, government stimulus checks pumping money into the economy, and a lower cost of borrowing after the Federal Reserve slashed interest rates. When vaccines became available and the economy rebounded, goods were still in short supply—a problem compounded by sanctions on Russian energy and shortages of Ukrainian exports like grain.

The mechanics of inflation

In the United States, the Bureau of Labor Statistics measures the rise in the price of goods and services using metrics such as the consumer price index (CPI). This aggregates data from a basket of thousands of consumer goods and services to measure how much prices have changed over a set period. Inflation is measured by the change in value of an indexed number over time and is typically expressed as a percentage that shows year-over-year change.

The Federal Reserve’s role in inflation

In the U.S., the Fed’s key job is to intervene in the markets to stimulate the economy or control inflation. It sets a target inflation rate of 2% a year. If the rate rises above that, the Fed may raise interest rates, making borrowing money more expensive. This tamps down on inflation by suppressing the availability of money and therefore spending. If the rate is below 2% and the Fed needs to stimulate the economy, it might lower the federal funds rate, or the interest rate at which banks can borrow from each other overnight.

How inflation relates to a nation’s GDP

The gross domestic product (GDP) of a country, or the measure of the goods and services a nation produces, expands and contracts over time. This is known as the business cycle, and it has four phases. Inflation corresponds to each of the four phases of the business cycle.

  • Expansion

    . Economic growth is positive and the inflation rate is within an acceptable range for the Fed (around 2%). The Fed may allow higher rates of inflation to ensure job creation. Production and wages increase, and inflation typically reaches its high at the end of this phase, before a peak.

  • Peak

    . Growth hits a maximum rate and the economy sees some imbalances, such as an inflation rate that is too high.

  • Contraction

    . The growth rate turns negative. As consumers have less demand for goods and services, businesses produce less and may offer discounts to increase sales. This leads to lower inflation, known as disinflation, or even deflation.

  • Trough

    . In the lowest part of the business cycle, when recession reaches its end, unemployment is at its highest and inflation is low. The Fed may lower interest rates to stimulate growth. This causes inflation to rise and expansion to begin.

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The highest inflation rate in U.S. history

The two highest year-over-year rates of inflation in U.S. history were in 1778 and 1917. In 1778, three years into the American Revolutionary War, the Continental Congress was printing money to fund the war, which increased the money supply, leading to inflation. Inflation peaked at nearly 30% in 1778.

During World War I, European nations paid for U.S. exports with gold, which increased the domestic money supply. The U.S. also increased spending, which stimulated the economy, but also increased the money supply. As the war ended, the Fed didn’t tighten interest rates, and people rushed to buy goods that had been rationed as businesses raised prices in response. By 1917, inflation peaked at nearly 20%. Inflation lasted until the depression of 1920, when deflation began.

U.S. inflation rate history

Inflation in the U.S. can be measured to the beginning of the country, and there are several notable examples through history.

  • 1778.

    During the American Revolutionary War, the Continental Congress printed money to fund the war, leading to national debt and an inflation high of 30% in 1778.

  • 1861-65

    . Inflation during the Civil War began when the Confederacy began printing its own currency that was unbacked by gold or silver. By some estimates, Confederate currency inflated between 5,000% and 9,000%, depreciated rapidly and pushed up prices, then collapsed at the end of the war.

  • 1917- 1920.

    The U.S. funded approximately 20% of its WWI effort by printing money and issuing “Liberty Bonds,” with inflation reaching nearly 20% in 1917. Inflation would continue to rise every month from 1916 to 1920, not falling below 19% until June 1920.

  • 1941-43.

    The U.S. spent the equivalent of more than one third of its GDP during WWII, resulting in inflation that peaked in 1942 at 13%.

  • 1946-47.

    Increased spending in a postwar economy caused double-digit inflation in the U.S. from August 1946 through October 1947. There were six straight months within that period in which inflation was above 18%.

  • 1973-83.

    A period of stagflation—a mix of high inflation and employment in a stagnant economy—began in the 1970s. President Nixon ended the gold standard in 1971, which drove up inflation. The so-called “Nixon Shock,” a policy of freezing wage and price increases and implementing surcharges on imports, resulted in inflation that topped 12% in 1974.

  • 1979-1981.

    During the Carter administration, the Iranian Revolution caused a disruption in the global oil supply. In a period of already higher-than-desired inflation, oil prices pushed the inflation rates into double digits not just in the U.S., but in other countries as well. At the beginning of 1980, inflation in the U.S. neared 14% and stayed high through 1981.

  • 2022

    . Inflation averaged between 1% and 3% between 2010-2020, then rose to 9.1% in June 2022, reaching a near 41-year high. The Fed began to intervene in 2022, raising interest rates to tamp down the inflation rate.

Countries with the highest inflation rates 

There are many countries with inflation higher than that of the U.S., as measured by Trading Economics. Not every country in the world reports their inflation numbers. Among those that do, these are thetop 10 countries with the highest inflation rates as of June 2022.

  • Venezuela, 222.3%
  • Lebanon, 211%
  • Sudan, 192%
  • Zimbabwe, 192%
  • Syria, 139% (as of January, 2022)
  • Turkey, 79%
  • Argentina, 64%
  • Suriname, 59.8%
  • Iran, 52%
  • Ethiopia, 34%

The bottom line

Rising inflation in a country is the result of an imbalance in the economy, and often the consequence of poorly managed monetary policy. Inflation is part of the ebb and flow of the business cycle, which is tied to a country’s GDP. The highest inflation in the U.S. often has been tied to wars in this country or crises in other countries.


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