This is the worst inflation in nearly 40 years. But it was so much worse back then

New York(CNN Business) US prices for just about everything -- from cars and gasoline to food and clothing -- are rising at the fastest pace in decades.

Overall, consumer prices rose in 2021 at the fastest pace in 39 years, meaning this is the worst inflation experienced by anyone not on the cusp of retirement or older.

But, as those older Americans can tell you, as unwelcome as it is for consumers, today's price increases are nowhere near as bad as they were in the 1970s and early 1980s. And most importantly for policymakers trying to deal with today's price hikes, what fed the double-digit prices increases in those days are not a factor today -- nor are they likely to be ever again.

"We learned our lessons from that experience," said Louis Johnston, economics professor at College of Saint Benedict in Minnesota.

Presidents Gerald Ford and Jimmy Carter, both tried and failed to bring prices under control. Ford's efforts included a "Whip Inflation Now" or WIN campaign, complete with shiny red buttons, that did little to help with prices. Inflation hit 12.2% in late 1974, soon after he took office, nearly twice the annual pace of increase through November of last year.

The inflation rate hit a record high of 14.6% in March and April of 1980. It helped to lead to Carter's defeat in that fall's election. It also led to some significant changes in the US economy.

Today the annual inflation rate stands at an unadjusted 7.1%, the highest 12-month change since June of 1982.

Here's some of the key factors different from today's US economy and the economy of the 1980s:

Wages tied to prices

One of the major differences between inflation then and now is that a much greater percentage of the US population were unionized workers, and many of those workers had what was known as Cost of Living Adjustments, or COLAs, built into their contracts. That raised their wages automatically as prices increased. So higher prices led to higher wages, which put more money in the hands of consumers and raised costs for businesses. It created what was known as the "wage-price spiral" that fed higher prices.

Even non-union employers would raise wages to keep pace with inflation or risk losing the workers to unionized employers -- or risk giving an argument to union organizing campaigns at their companies.

Today, only about 12% of workers are represented by unions, about half the rate of 1983, the earliest year for which the government recorded that data. Today's unionized workers are primarily government workers, such as teachers, police and firefighters. Only 7% of workers in the private sector are union members. And most of those don't have COLA clauses in their contracts. During the extended period of low inflation over the past couple decades, unions were willing to give up COLAs in return for other improvements in wage and benefit.

About the only widespread COLA now in effect is for Social Security recipients, and employers don't feel a need set wages to compete with those benefits.

Wages are rising because of a record number of unfilled job openings and a shortage of workers. But even those wage increases are less than the rate of inflation, so it's not likely to feed into higher prices.

A global check on prices

In the 1970s and 1980s, higher costs could be passed onto consumers in the form of higher prices more readily than now because competition from overseas imports wasn't as great then as it is today.

Competition from overseas certainly existed then, but in many sectors of the economy, businesses only had to worry about domestic competitors. That's not the case any longer.

A surge in global trade has kept inflation in check in recent decades. Part of today's inflation is being attributed to problems with the global supply chain, which has led to a worldwide increase shipping costs. So that has limited the supply of low-cost competition, which in turn has allowed even leading domestic companies to raise their prices as well.

Oil shocks hurt worse back then

One common factor between the record inflation of the 1970s and 1980s and today is rapidly surging energy prices.

The 1973 Arab-Israeli War prompted Arab members of OPEC to impose an embargo on oil shipments to the United States that lasted into 1974. And the Iran-Iraq war of 1979 choked off supply as well.

The limited supply sent prices soaring. Drivers were hit with a 69% increase in gas prices in early 1980 compared to a year earlier, which was even worse than the 58% annual increase through November of this year.

This time, large percentage increases in oil and gas prices are partly due to comparisons to the very low prices of 2020, when stay-at-home orders and widespread temporary job losses created a glut of oil, and temporarily resulted in negative oil prices.

Those lower prices prompted producers to cut oil output, and some refineries to close. When demand returned this year, the tighter supply and strong demand combined to drive up prices.

Although oil and gas prices could very possibly stay or climb even higher in the months ahead, the good news is that the US economy is much less dependent on oil today than it was 40 or 50 years ago.

Moving from an economy built around energy-intensive industries such as manufacturing to one driven by service industries has reduced the relative dependence on oil.

"One of the most overlooked changes is the reduced energy intensity of the American economy," said Johnston.

Comparing total energy consumption to gross domestic product, the broadest measure of a nation's economic activity, shows the US economy uses about a third of the energy per inflation-adjusted dollar of economic activity that it did in 1970, and about 44% of what it used when inflation peaked in 1980.

The 1970s and 1980s oil shocks significantly reduced oil as a source of fuel for electricity generation to the point where it is well less than 1% today. And more importantly, much more fuel-efficient cars also limited oil consumption despite many more miles being driven. That means Americans are spending far less on oil compared to other items.

Deregulation

Another significant change in the US economy is that the government is much less involved in setting prices than it was then.

Deregulation of industries such as telecommunications, airlines and trucking all started partly as a response to the high prices of the 1970s and 1980s, said Johnston. Government-controlled prices generally limited competition and kept prices and services offered to consumers artificially high.

Although the actual changes in the law didn't take effect until after the inflation dragon had been slayed, the deregulation has worked to keep prices for many of those goods and services lower than they likely would have been otherwise.

Inflation finally did come under control, thanks largely to the Federal Reserve under chairman Paul Volcker jacking up the federal funds rate to a record 18.9%, sparking recessions in both 1980 and another in 1981-82. By the time the second recession ended, the inflation rate was down to 4.5% and it wouldn't hit 5% again until 1990.