Twenty years of U.S. government inflation data

Inflation is the silent killer of wealth. Year after year, the purchasing power of your dollar (or pound or euro or yen) gradually erodes. My father was one of those “hide money under your mattress” type folks because he believed that was the best way to keep his cash safe. He was wrong.

If you sit on your money, it doesn’t maintain its value. It loses value.

At his Carpe Diem blog, economics professor Mark Perry recently published a new version of the following chart, which visualizes the effects of inflation on certain consumer goods and services.

21 Years of Inflation (from Carpe Diem)

As you can see, this chart tracks 21 years of inflation data: from January 1998 to December 2018. (Perry uses official Consumer Price Index data from the U.S. Bureau of Labor Statistics.) He writes:

During the most recent 21-year period from January 1998 to December 2018, the CPI for All Items increased by exactly 56.0% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly earnings (wages). Seven of those goods and services have increased more than average inflation…The other seven price series have declined since January 1998.

In the chart, the black line indicates average inflation over the past 21 years. Red lines indicate items that have increased in price at rate faster than inflation; blue lines have decreased in price relative to inflation.

If you read the accompanying blog post — and especially the comments that follow — you’ll see that people are quick to jump to partisan conclusions regarding this chart. “The more expensive stuff is a result of socialism and government regulation!” “The less expensive stuff is open to free market competition.” (These comments aren’t surprising considering the blog is published by a conservative think tank.)

I believe these responses are overly simplistic. Besides, they miss the really interesting stuff.

For instance, look at the price of televisions. According to the CPI, the price of TVs has declined 97% in the past 21 years. I think we all know that’s not actually the case. TVs have grown more expensive, along with most everything else. So, why does the data state otherwise?

According to the frequently asked questions about the Consumer Price Index:

A fundamental problem for the goods and services in the CPI sample is that their characteristics, not just their prices, change over time as the retailers introduce new versions of items and discontinue the older versions. In many categories of items, this is the primary time when price change occurs. The new version of the item may provide additional benefits or, in some cases, reduced benefits. This change in benefit is quality change.

To measure price change accurately, the CPI must be able to distinguish the portion of price change due to this quality change.

To compensate, the CPI uses a technique called “hedonic quality adjustment”.

As new features are added to existing products, economists attempt to model what the new features are worth if broken down to their constituent parts. In 1998, your television was a boxy beast. In 2018, it’s probably a big, slim wall-mounted display with dozens of nifty features. Each one of those features has a value that gets included in the inflation calculations.

If you could have purchased a modern TV in 1998, it would have cost a small fortune. And in 2018, an old CRT TV would only cost a fraction of what it did back then.

It’s also interesting to note that the cost of manufactured goods (like cars, toys, and TVs) has declined more than the cost of services (such as medical care and education). I’m not sure why this is the case, but it’s true.

When I look at this chart, I see something else. It appears to me that those things that are most useful or most necessary have had the highest price increases. Those things that are least necessary have seen the biggest price drops. If I had more time, I’d dig deeper into the data to see if this is actually the case.

Inflation statistics are one thing. Actual experience is another. When Kim and I complain about prices, food is what bugs us most. Nowadays, dinner in an average restaurant runs about fifty bucks. That would have bought a fancy dinner in 1998. Even my standard two cheeseburger meal at McDonald’s costs more than $5 now. (I don’t get it very often, but it seems like it should cost $3.) Groceries show similar increases.

Home prices seem outrageous in Portland still. Health care prices also seem crazy. We also think most entertainment options — movies, sporting events — are exorbitant. I think books are spendy too. (Do I sound like a grumpy old man yet?)

Meanwhile, clothing seems cheaper to me than it did two decades ago. (And I say this as a guy who used to shop at thrift stores!) Now that we’re preparing to buy a new car, vehicle prices don’t seem that bad — at least not for the low-end models we’re considering.

As a final note, I’m puzzled by the items the chart chooses to track. They seem arbitrary. Why show toys and televisions but not energy or transportation? Why, specifically, cell phones? Why not entertainment and recreation? And so on.

I’d love to see a similar chart with a more robust set of data. (Maybe this is a job for Zach from Four Pillar Freedom?)

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There are 14 comments to "Twenty years of U.S. government inflation data".

  1. Dave @ Accidental FIRE says 25 February 2019 at 14:59

    Hey grumpy old man… I walked across your lawn and you didn’t even yell at me 😉

    I was working on a big post about this since like Zac I do lots of data-type stuff but I put it on pause. Part of the reason I did is because of one of the questions you asked at the end – why only those products? Bottom line, I had a hard time coming up with accurate historical price data, and also I was trying to go back further than 20 years which made it even harder still. The data I did find was kind of all over the map too, and unlike wage data and job data which has official government sources, I didn’t know which to trust.

    I wound up doing a different but related post which shows that household incomes have been rising faster than inflation since 1984 – with accurate and official government data. That caused controversy because people believe the oft-repeated drumbeat from the media that the middle class incomes are going down. It’s simply not true. The facts are the facts, median household incomes have been outpacing inflation since 1984. We have the income data and we have the inflation numbers, it was pretty simple math. Zac at FPF did a similar post with more evidence backing mine up.

    Where it gets complex is what’s shown on that chart that you link to – some things have gone up ridiculously. Like college tuition. And houses, depending where you live. So yeah, you can now get a 50″ flatscreen TV for $400, and that is pretty cheap for what you get. But college is $40,000 a year. So (and this is only if you have kids) all the savings in the world on electronics and clothes are only gonna get you so far when it’s time for junior to go to college. Then you might be screwed if he can’t play football well enough to get a scholarship.

    It’s complex for sure. Great post.

    • J.D. says 25 February 2019 at 16:26

      The skeptical part of me thinks that the items in this graph were cherry-picked to promote a political agenda. That’s too bad. There are plenty of interesting, enlightening discussions to be had on both sides of the aisle without overtly pushing things in one direction, you know? (Of course, I’m pretty neutral, so all partisan stuff makes me itch haha.)

      • AJ says 01 March 2019 at 07:28

        Don’t get me wrong, I agree with you that it would be interesting to see even more things mapped out on the chart, I’m all for that. However, I’m not sure that pointing out how much some things have increased is the same as pushing a political agenda. Those things noted (health care and college) have just increased a LOT. The facts and numbers don’t lie there. Adding in other items definitely is useful and I’d be all for it, but I still think that we probably need to do something to help address the items that are increasing at such crazy rates or it will get to the point where more and more people are going to be priced out. And yes, the numbers probably do help the points of people with a particular leaning, however, I don’t think the numbers pointing in a way is quite the same as pushing an agenda. Or at least that’s my view.

        Besides, I know you mentioned wanting to see something like entertainment, and even if that’s a category that also is increasing at a crazy rate also, I don’t think something that’s so clearly discretionary is going to be painted in the same light. More info (to a point) is typically better, but those numbers are high regardless of your political leanings 🙂 I think most americans on both sides of the aisle would agree it’s getting harder and harder to pay for health care and college. The difference is more likely not in that fact, but in the details of how people would like to address it.

        • J.D. says 01 March 2019 at 08:27

          Hey, AJ. I agree with you: Merely pointing out that things have increased is not pushing a political agenda. However, the creator of the chart (and his commenters) attempt to make simplistic conclusions about why certain items have increased and others haven’t. I don’t have a horse in this race — I dislike both parties equally haha — but get cranky whenever anyone tries to use raw numbers with complex sources as a vehicle for their personal propaganda.

  2. Mr. Tako says 25 February 2019 at 16:44

    Yep, as we’ve outsource globally, physical products have gotten cheaper (lower cost of labor, economies of scale, etc), while services have seen significant price inflation.

    It makes perfect sense! I’m not sure I’d attribute it to socialism though. There’s a lot less competition locally to supply those services, so prices will naturally inflate. Imperfect competition is the term from economics.

    In the case of food, a growing portion of that is imported and local farms have grown significantly in size (lending to greater economies of scale). It makes sense that food prices are more constrained than say TV’s which are 100% imported.

    Not sure I have an answer for textbooks though. That one I’ll need to think about more.

    • Cooper says 08 March 2019 at 17:16

      There isn’t much, if any, competition for textbooks which allows publishers to basically set their own prices. Also, I believe that limited press runs also contribute to the high prices due to the fact that there is no economies of scale in textbooks.

      Quality paper plus photos, graphs and charts also contribute to the high cost of making the textbooks.

      Just a few reasons that I can think of for the high cost of textbooks.

  3. Ian says 25 February 2019 at 20:36

    Regarding college textbooks: the used book market exploded with the advent of internet shopping, and obtaining books via piracy also become/has become both easy and popular. As such, publishers are struggling to continue bringing in a revenue stream that used to come from a previously captive audience. Where a freshman general chemistry book used to cost $90, now it can run $200-300, which in turn encourages students to spend more effort not paying.

    Regarding universities: in my (pretty biased) view, bureaucratic growth is somewhat to blame. This book, while somewhat polemical, shares that view and provides some harder evidence: .

    • JanBo says 26 February 2019 at 16:22

      Bill and Melinda have gotten into the text industry. Free textbooks. OpenStax. They are making their way into universities that do not depend on “publish or die” for their faculty. A physics professor I know said the text is good. Should change things up on the University level.
      BTW- most US elementary and high school text book(and testing) companies are foreign owned….Different name/ same parent company. Canada K-12 only has text books from Canada.

      • Ian says 27 February 2019 at 18:26

        Absolutely agreed! The availability of open access course materials has also contributed to rising textbook costs. My university is pushing faculty to adopt open access resources where possible, and part of the reason is that the quality IS equal to (or better) than what’s offered for introductory courses. Unfortunately, open textbooks are typically unavailable for upper-level courses, so there’s some progress to be made.

        I believe this won’t be reflected in textbook costs – as open textbooks won’t be counted reported price of textbooks, the price in charts like this one will almost certainly continue to balloon. But thankfully, it won’t reflect the reality students face when they can access legitimate, free resources to pursue their studies.

  4. S.G. says 25 February 2019 at 20:55

    I doubt the categories are about politics as much as trying to hit specific sectors with a level of specificity that measuring is reasonable. As you point out “TV” is hard enough. “Transportation” isn’t a specific good or service, and “cars” are listed. And for “energy” it’s subject to interpretation as to what kind of energy you mean. Most commodities are actually easier to analyze than many of these as they are directly publically traded. “Electricity” might be an interesting one but I’m not sure leaving it out is intentional.

  5. vand says 26 February 2019 at 08:57

    Basically, anything the Government decides to gets involved in always gets more expensive.

  6. Marc says 26 February 2019 at 11:16

    I keep track of the price change in random things over my lifetime (around 40 years). The following are sorted by lowest price increase to highest. I like to look at percent price increase per decade over the last 40 years.

    Items that are less than 50% per decade increase: BYU Tuition, Cost of a Suit, Cost of Gasoline, Government Reported Inflation.

    Items in the 50% to 75% per decade increase: Taxes, Bread, Houses, New Car, Silver.

    Item that increased more than 75% per decade: Household Income, Stocks, Average College Tuition, Cable TV, Gold, Health Care.

    Not perfect, but a good general idea. I’ve listed my data and sources below.

    BYU Tuition
    1976 $720
    2017 $2,730
    3.4% (39.7%/decade)

    1970 $56.95
    2016 $300
    3.67% (43.5% per decade)

    1970 $0.36
    2016 $1.91
    3.69% (43.6% per decade)

    Government Reported Inflation
    1970 $1.00
    2016 $6.20
    4.05% (48.7%/decade)

    ground beef
    1970 $0.70
    2013 $4.68
    4.52% (55.6%/decade)

    1970 $677.80
    2010 $4,511.50
    4.85% (60.6%/decade)

    1970 $0.25
    2013 $1.98
    4.93% (61.8%/decade)

    Median home price
    1970 $23k
    2015 $223k
    5.18% inflation (65.7%/decade)

    New car
    1970 $3,450
    2013 $31,352
    5.27% (67.1%/decade)

    1970 $1.63
    2015 $17.66
    5.44% (69.8% per decade)

    Household Income
    1970 $8,689
    2016 $59,149
    6.6% (89.5%/decade)

    Dow Jones
    1970 842
    2016 18,094.83
    6.9% (94.9%/decade)

    College Tuition
    1970 $358 $1,561
    2010 $6,695 $21,908
    7.6% – 7.83% (108% – 112.5%/decade)

    1968 $3
    1975 $6.50
    2016 $103.10
    7.65% (108.9%/decade)

    1970 $38.90
    2015 $1,060
    7.66% (109% per decade)

    Health Care Spending
    1970 $356
    2010 $8,402
    8.22% (120.3%/decade)

  7. Mid America Mom says 26 February 2019 at 12:38

    WOW! Thanks for sharing this. My husband and I were just talking about how much more we have to pay for our employer subsidized health – the premium, deduct and out of pocket are so much more. Back in 1994 I had a health ding on my record (remember those days?) and was in a HMO for $100 a month with a $250 deductible and like 750-1000 out of pocket. These days we are a family of 4 in a so-so plan that costs between premium and deductible – 11k a year PLUS out of pocket max on top of that. Due to a health condition we have to worry about this to the tune of at least 13k! MORE than our mortgage and I find this is completely insane.

  8. Robert Schulz says 01 March 2019 at 12:49

    I think it would be interesting to break out the items that impact retirees and those that fall on Millennials. Health care for premiums impacts both, but usage falls primarily on retirees. Tuition, books, child care, housing reduces the saving ability of the 30-50 crowd.

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