Thursday, June 18, 2020

Remember when Gas was Just $0.30/gal?

(By T4c. Messerlin. (Army) - http://www.dodmedia.osd.mil/Assets/1999/DoD/HD-SN-99-02404.JPEG, Public Domain, https://commons.wikimedia.org/w/index.php?curid=52903)

A friend recently sent me a greeting card with an insert showing what happened the year I was born (1959). Along with who was President (Dwight Eisenhower), Best Picture (Ben-hur) and top song (Lonely Boy by Paul Anka), the insert include the price of common items.

These prices provide a good check for what type of inflation we have had for the last 61 years. Lately, we have enjoyed several years of relatively low inflation (<= 3% since 2008). Going back to the period of 1973 to 1981, the rate was much higher, sometimes reaching over 10%.

A future price of an item, P2, based on an original price, P1, after undergoing n periods of inflation at rate, i (expressed in decimal form):


This formula can be used to calculate the inflation rate for each of the items listed.
 

Item

1959 Price

2020 Price

Inflation

Min. Wage

$1.00/hr

$13.00/hr

4.3 %

Gas

$0.30/gal

$2.89

3.6 %

House

$18,400

$578,000

5.8 %

Milk

$1.01/gal

$ 4.00

2.3 %

Eggs

$0.88/doz

$ 3.00

2.0 %

US Postage Stamp

$.04

$.0.50

4.2 %

Dow Jones Indus Ave.

679

26080

6.2 %


The last item listed is the Dow Jones Industrial Average stock index. Its average growth over the past 61 years was 6.2%. That's higher than any of the items listed including the house (the 2020 price was California median price for 2020).  The prices you currently pay are likely different based on your favored brands and location. So if you would like to check the rate for your items, please see the link where these calculations will be done for you. You just need to enter the two years of interest and the old and new prices. The spreadsheet will do the rest. 

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