In the 1970s, inflation had reached a heightened pitch in the economy. Many business, employment, real-estate, and government contracts made use of COLAs to hedge themselves against rising inflationary rates.
By 1975 the United States congress voted to add cost of living adjustments to social security. This was in the face of double-digit inflation within the economy.
Further adding to the controversy, was President Nixon, who had just finished removing the U.S dollar from the gold standard in 1971. This created a financial vacuum, in which the US saw its own dollar value plummet.
Against the value of foreign currencies, the US found its own monetary policies lagging far behind. The price of imports rose dramatically, further contributing over time to inflationary rates.
However, with the addition of cost of living adjustments made to social security benefits, adjustments began to kick in before the situation worsened any further.
In 1975 alone, cost of living adjustments rose 8%, with several more years following of rising inflationary periods. This culminated in a staggering 14.3% rise in 1980, followed by another 11.2% rise in 1981.
In desperation, Federal Reserve Chairman Paul Volcker invoked a raise of 20%. While Volcker’s goal to halt inflation may have been admirable at the time, it nonetheless resulted in a recession.
Despite the ensuing recession, double-digit inflation has effectively been eliminated since 1982. In more recent years, it has even remained below 8%, with the only spike occurring during the 2008 financial crisis at a nominal 5.8% inflationary percentage.