Expert: Docs99 - 6/11/2009

Question
Dear Docs99,

I was born in 1988 so I really don't know the answer to this question. I have heard by different people that in the 1950's it was not uncommon to have a house payment or rent payment of only $70 a month and that a cheeseburger cost .15 and a soda .10 I have had so many different older people tell me differently about this. Some have said that $1 50 years ago is like $15 today, some have said the ratio is more like 1:10, some said 1:8, and one person has said it just "doubled". If the first is right and the ratio is 1:15, how can inflation has gone up 1500% in just five decades? That's an average change of 30% a year! I have read on the CPI site that minimum wage in 1952 was 0.75 an hour. Will we experience the same kind of inflation and price differences in the next 50 years?

thanks,
Blaine B.

Answer
Thank you for your query.  I really do not know if we will experience that same kind of inflation and price differences in the next fifty years.  Bear in mind that inflation was rampant in the Carter years. Inflation spiked then, however was low in other years.  You may want to get the GDP deflator and compare the numbers. Also, note that technology has a lot to do.  Today computers are really inexpensive and affordable, twenty something years ago were a luxury item and very expensive.  The basket of good and services reflected by the CPI has changed from the fifties to now.  However, the real value of money has changed. You may want to get an approach like: a burger and a soda cost so much then, it costs this now, then the multiplier will give you an idea of the real value of money.  Try the simple approach of using a good as numeraire. Say, a bus ride in a city in a certain year. Then look up today's price of a bus ride in the same city. Money is a common denominator.  The barter approach will give you a better sense of how prices change or not, I think. Good luck.