Update January 2005: Consumer prices rose 3.3 percent in 2004 according to The Labor Department's Consumer Price Index.
How does inflation translate into real dollars compared with the sensational headlines of inflation in the 1970s? Based upon the poverty line nationwide (minimal, livable annual income for a family of four,) in the 1970s, the poverty line rose from $3,968 in 1970 to $7,412 in 1979, an increase of 87 percent.
For nine years ending in 2004 the poverty line rose from $15,569 to $19,657 an increase of only 26 percent. But from 1970 to 2004 the increase is almost 500 percent. Did your salary increase 500 percent in the past 30 years? The federal minimum wage is $5.15 per hour, or 355 percent above the rate in 1970.
If wages kept in sync with inflation and the poverty line for the same time period, the federal hourly rate would have to be at least $9.46 per hour.
Your checkbook doesn't agree with the inflation rate, but that must mean you fail to manage your money well.
Are you spending less on products in 2004 than you paid in 2002? The US Government figures a slim inflation rate for the period 2002 - 2004, and the Feds say the inflation rate for this period runs 2 to 3 percent each year. Does your checkbook agree?
Your physical location may account for as much as a 5 percent discrepancy in the national inflation rate, according to the US Commerce Department. However, when you crunch the numbers from your checkbook, and compare them to the national average the inflation rate from 2002 to 1Q04 (first quarter 2004, ) the surprise difference may be shocking.
"You don't hear much about inflation in the news," said Virginia Snyder of Staten Island, NY. "I remember in the (19)70s, all we heard was 13 percent inflation rates." It was shocking to her three decades ago said Snyder, 61, who recently calculated that her personal inflation rate for the past two years is closer to 12 percent a year or five times what the US Federal Government says is the case.
Based upon average prices in New York City from 2002 to 1Q04, the inflation rate reflects a 19.5 percent increase overall, or 8.67 percentage points per year, less than Snyder's own calculations.
For the past 12 months, ending in May, the US Government says core inflation has risen 1.8 percent. During the first quarter of 2004, the Consumer Price Index (CPI) has risen 3.3 percent, or the strongest rise in 8 1/2 years. The CPI report shows energy prices gained only 0.1 percent in April, despite hefty rises in gasoline prices. While gasoline costs fell 0.3 percent in April, prices at the pump continued their rise to record highs.
Inflation is a continual increase in the overall level of prices. It is an increase in average prices that lasts at least a few months. The most widely reported measurement of inflation is the CPI which measures the cost of a fixed set of goods relative to the cost of those same goods in a previous year. Changes in the prices of those goods approximate changes in the overall level of prices paid by consumers.
The Labor Department reported in May that the Producer Price Index, which measures the prices of goods before they reach stores, rose 1.87 percent so far in 2004. April's food price increase alone (1.4 percent) along with higher energy prices are blamed for the latest increases across the board. Nationally, food prices have topped 3 percent increase in 2004. (The Labor Department also says the job market is improving, even though unemployment benefits rose in May by 13,000 per week.)
Food prices rose 1.4 percent in April, on top of a 1.5 percent increase in March. More than half of April's increase was due to a 10.4 percent jump in prices for dairy products, the biggest rise since July 1946, the government said. Higher dairy product prices stem from a number of factors, including using more cows for beef rather than milk production, economists said. Prices for meat and soft drinks were higher. Eggs and vegetables fell slightly in April.
"The numbers aren't working out," said Alan Lee, 38 of Manhattan.
"Until I checked my own expenses for the past few years, I didn't realize my paychecks were growing smaller despite pay increases.
"But now I know it isn't me, I'm not going crazy, its the Feds, they simply can't keep their books straight," Lee said.
Whether the inflation rate is considered high or low today -- historical comparisons tell the true story as inflation relates to the average taxpayer.
In the year 1900 -- $1 in purchases is equal to more than a $19 spend in 2004. Yes, it is likely you make more money by comparision in 2004 than your granny earned in year 1900. However, on what little money granny made in 1900, she could buy a house for about $5,000. Workers would have to earn roughly 93-cents per hour (remember, there were no federal or state taxes at that time) to qualify for a home loan by today's standards.
But in year 2004, granny would spend $200,000 on that same house... and at a minimum, she would have to bring home $96 per hour in salary.
If you wonder why you can't make ends meet, Think & Ask the next time you hear an inflation rate. It never actually drops.