It was January 1973. The ''Poseidon Adventure'' was playing to packed houses in New York. G. Gordon Liddy and James McCord Jr. had just been convicted of spying on the Democrats during the 1972 presidential campaign. Egypt and Israel were on the brink of war.
Despite wage and price controls exercised by President Nixon, the US Labor Department reported that the consumer price index (CPI) for December 1972 rose a troubling 0.2 percent, bringing it up 3.4 percent for the year.
You would have to go back to December 1972 to find a yearly inflation rate lower than the one reported by the Labor Department yesterday: consumer prices rose only 0.3 percent last month, helping to hold inflation in 1983 to 3.8 percent. That modest increase, following a similarly modest 3.9 percent increase in 1982, appears to slam the door shut on the era of accelerating inflation that spanned the past decade.
The period between 1972 and '82 was a time in which prices, especially gasoline prices, increased relentlessly. Groceries, clothing, home appliances, educational, medical, recreational expenses - one always expected higher prices. The prevalent mentality of the '70s seemed to be: Buy it now, it's going to be more expensive next week.
Employees without cost-of-living adjustment clauses in their contracts saw the spending power of their paychecks shrink. Businesses watched raw-material costs escalate and found it almost impossible to establish firm prices for goods and services. High inflation hit everyone in the pocketbook.
Internationally, crisis followed crisis. Most involved oil. In August 1973, Israel and Egypt went to war, and an Arab oil embargo ensued. In the years that followed, oil would multiply tenfold and inflation would skyrocket. Oil costs accounted for 2 to 3 percent of the inflation rate each year in much of the '70s , says Barry P. Bosworth, a Brookings Institute economist.
When Ronald Reagan took office in 1980, he inherited a 12.4 percent inflation rate. World oil prices were at $34 a barrel and apparently heading upward. But through a concerted anti-inflation policy - helped greatly by a moderation in world oil prices and worldwide economic slowdown - the Reagan administration supported the Federal Reserve Board's restrictive monetary policy as it brought the CPI down to 8.9 percent in 1981 and 3.9 percent in 1982.
Tuesday's Labor Department report indicates that gasoline cost 1.6 percent less at the end of 1983 than one year earlier; home heating rose only 1.8 percent.
Both Mr. Bosworth and an American Enterprise Institute economist, Gottfried Haberler, note that controlling inflation has been bought, in part, by the strength of the dollar, which can be traced back, through high interest rates, to the huge federal budget deficit. The bounty of cheap foreign goods that results from the strong dollar has helped keep prices down. Mr. Bosworth says imports account for 10 to 15 percent of US demand.
The budget deficit, however, is a ''depressive factor,'' Dr. Haberler says. And the flip side of the strong dollar is the difficulty US exporters have competing abroad and domestic producers have competing against cheap imports.
While noting that the decrease in inflation is ''very gratifying,'' Haberler says he worries that the expanding economy and the high level of corporate profits will encourage unions to seek a bigger share of the profits. This could cause wages and prices to spiral upward again, he says.
To Bosworth, the reining in of inflation - touted by the Reagan administration as proof of the effectiveness of Republican policies - underscores a fundamental shift in American postwar economic thinking: Controlling inflation is the primary consideration in the economy today - more important even than decreasing unemployment. Economic policies are geared to pruning inflation wherever it might appear, Bosworth says. Federal Reserve policy pivots on concern about inflation, and the money supply is tightly controlled as a result.
''The World War II generation was traumatized by unemployment,'' he says. ''Coming out of every recession since World War II, the most important concern was to get unemployment down. . . . The (inflation) of the 1970s has caused governments to decide to run the economy at a much higher level of unemployment.''