A Discussion Regarding Inflation
What Is a Dollar Worth?
Let's play around with this concept of inflation for a bit. Shown below is our "What is a dollar worth?" inflation calculator. It can tell you what goods and services that cost any amount in one year would or did cost in another year. The calculator uses the actual inflation rate for the years 1913-2010. (After 2010, prices are based on an average increase of 3% per year). Play around with this and see how the value of a dollar has changed over the years. How much more would a dollar buy 50 years ago?
Shown is a table of items and the average cost in 1960. Assuming the price of all of these items rose at the rate of inflation (and not all of them did), what might they have cost in 1980? 2000? Today? Use the calculator to find out! To track the answers, fill in the boxes in the 2010 Prices column.
|1. Baseball ticket||$2.00||$ $24.00|
|2. Gallon of gas||$0.31||$ $2.75|
|3. Dozen eggs||$0.57||$ $1.95|
|4. Barbie doll||$3.00||$ $12.99|
|5. Gallon of Milk||$0.49||$ $2.98|
|6. 1 lb. sirloin steak||$0.89||$ $7.59|
|7. Singer sewing machine||$19.95||$ $89.99|
|8. iPod (Of course, this did not exist yet! What might have been comparable in 1960? Perhaps a transistor radio…)||$6.95 (1965)||$ $138.00|
|9. Steam iron||$9.99||$ $29.99|
|10. 1st class postage||$0.04||$ $0.44|
|11. Men's all-wool suit||$29.99||$ $169.00|
Click here to see the true prices of these items in 2010. How does the true price compare with the price you got using the inflation calculator. Some differences, right? This just illustrates the point that inflation is a measure of the AVERAGE price level. Some prices go up by much more than the stated inflation rate, some go up much less and some prices even go down.
If you clicked the link above, you see that the table above shows a list of items as they were priced in 2010. If the cost of each item rises an average of 3% every year (and not all of them will), what might these items cost in 2020? 2035? 2050? 2070? Use the calculator to find out!
Thought You Should Know
With all of this focus on inflation, you might think that inflation is a common occurrence. Well, it is; however, there have been periods in our history where the overall level of prices declined—Deflation! Even though the thought of price decreases on houses, cars, concert tickets, music downloads and most good stuff is appealing, usually wages go down too, which takes all the fun out of the lower prices on consumer goods.