The Fed Predicted in 1977 That a Gallon of Milk Would be $12.50 by Now
The average price is currently $4.44 per gallon.
Inflation has been brutal lately, with prices up 7.1% from a year ago. And while the rate of inflation has been cooling over the past five months, it’s still difficult for a lot of people to make ends meet. But at least one prediction from the Federal Reserve about inflation in the 1970s was dead wrong.
In 1977, the Federal Reserve Bank of St. Louis predicted that a gallon of milk would cost $12.49 by the year 2021, according to an article in Ohio’s Daily Reporter newspaper in Dover. That’s much higher than the current price of a gallon of conventional milk, which is about $4.44, according to the latest figures from the USDA.
The article also explained that a pound of peanut butter would cost $11.23 and a pair of work pants will be $80.69. The current national average for a pound of peanut butter is just $2.48, Clothing is actually one of those categories that rose with inflation from the 1950s, but leveled off in the 1990s, actually decreasing in the first decade of the 21st century.
The graph below from the St. Louis Fed shows how clothes actually got cheaper at the start of the 21st century.
Why did the experts of 1977 think milk would cost roughly three times more than it actually would by the early 2020s? The assumption built into the Federal Reserve’s model assumed annual inflation of 5%. But the 1990s really changed things. As Dean D. Croushore explained in a 1998 paper, inflation went from about 3% in 1983 up to 5% in 1990. But it spent the rest of the 1990s at roughly 3% or less.
But inflation isn’t the only thing that has an impact on the price of goods. Dairy producers started getting financial assistance during World War II and in 1949, Congress passed legislation that sought to stabilize food prices generally, including milk.
The government’s heavy subsidies for the dairy industry have come under fire in recent decades, especially as Americans are drinking less milk than ever. And with the decline of smaller farms in the U.S., most of those subsidies are going to enormous companies that really don’t need the government help. In fact, American milk producers get a majority of their revenue from government handouts rather than profits from the open market.
But at least milk isn’t $12 a gallon yet, as they predicted in 1977. Well, it isn’t for so-called conventional milk. If your preference is organic or some other high-end variety, you’re definitely paying close to $12 already. But that’s on you, not inflation.