As the US wartime economy was working at full capacity, the dangers of inflation were ever-present. With just about everyone in work, it was inevitable that effective demand in the economy would continue at a high level, potentially leading to a sharp hike in inflation. The government used its substantial wartime powers to nip the problem of inflation in the bud. They used a number of methods to achieve this aim, two of which we will examine here.
First and foremost, the government introduced what was called the General Maximum Price Regulation, or "General Max" as it was known for short. Under the auspices of the Office of Price Administration, the General Max maintained prices at March 1942 levels in order to prevent runaway inflation. In the months leading up to April 1942, inflation had been growing apace, reaching as high as 10.3 percent. It was therefore felt necessary to impose a ceiling on prices to dampen down demand.
Generally, the measure proved effective; the annual rate of inflation remained low, at around three percent per year. Though inevitably, once price controls were scrapped after the War, inflation soared dramatically, reaching the dizzy heights of twenty-eight percent for a brief period in 1946.
A further measure introduced to combat inflation during the War was the limiting of wage increases by the National War Labor Board (NWLB). Wage increases were pegged at fifteen percent, as this was the factor by which the cost of living had risen between January 1941 and May 1942.
In some respects, the limiting of wage increases was almost too successful. Although it achieved its fundamental goal of bearing down on inflation, it also led to a slight reduction in the standard of living in some parts of the country, most notably the South.