The consumer price index (CPI) is the primary metric for measuring inflation. It represents the cost of a representative basket of goods at any given time (usually monthly). In the good old US of A, our government’s Bureau of Labor Statistics continuously tracks and regularly publishes the CPI. You can go to this page on their web site to compare the CPI between any two months since 1913. For instance, the site will tell you that the buying power of one dollar fifty years ago (July 1972) is equivalent to that of $7.07 in July of 2022. In other words, expect a roughly seven-fold increase in the price of things when comparing the two eras.
Some background
It’s beyond the scope of this humble post to describe all the details of how the CPI works and how it is derived. Suffice it to say that the folks at the BLS track the prices of over 8000 items in all regions of the country, building a shopping cart and computing the overall price. Since the cost of, say, an automobile far outweighs the cost of, say, a can of beans, the BLS applies a weighting formula to each item so that no one product, or even one sector of the economy, has an overwhelming effect on the CPI.
I don’t have the kind of resources or history that the BLS does, so take the following for what it is, slightly-better-than-anecdotal evaluation of the CPI, and solely with regard to food prices. Depending on how much interest this article gets, perhaps I’ll do a follow-up on other types of goods.
Methodology
To do a thorough analysis, we could travel back in time, oh, 50 years ago and land in a Safeway and get all the price data we want. But I asked H.G. Wells and it turns out his time machine is in the shop, waiting on spare parts delayed by supply chain issues. And Doc Brown said the same about his DeLorean.
Instead, we’ll use a copy of the Washington (D.C.) Evening Star from 50 years ago (Wednesday, August 16, 1972 to be precise). I located the Food Section, wherein pretty much every major grocery chain (Giant, Safeway, Grand Union, A&P, etc.) in the area at that time took out full page ads displaying their wares that week. For instance, a half gallon of store brand milk at Safeway could be had for 61 cents back then. (No, I promise this is not going to turn into one of your grandfather’s “in my day, you could buy a car for $12” stories). By comparison, a half gallon of Value Corner milk in Maryland today is listed at $3.49 on Safeway’s web site. So a little math (3.49 divided by 0.61) yields roughly 5.72, indicating a 572% increase over the past 50 years.
This is somewhat less than what the BLS’ CPI calculation would predict ($4.31) but it is certainly in the neighborhood. So I built my own shopping cart of a dozen standard food items that are available today and were listed in the ads in 1972 (sorry kids, chicken nuggets weren’t really a thing back then). Is the BLS overstating the CPI for this cart of semi-randomly-chosen goods? Understating? Or are they reasonably close?
Keep in mind that the units of measurement in 1972 aren’t necessarily the same as today. While Heinz continues to sell a 14 ounce bottle of ketchup, that standardization is a rarity. In 1972, you bought a half gallon of ice cream; today you’re going to find that carton of Breyers is just quart and half. So in the table below, for ease of comparison, I’ve computed costs on a per pound or per ounce basis.
The Results
So, how’s it look? Half the prices are below the CPI 7.07 index, and half above. With a couple of exceptions, none are too far off — generally a six to eightfold increase. The outliers are chicken and fish, which both show more than a ten-fold increase, and our original example, milk, the price of which turns out to not to have kept up with inflation. For what it’s worth, a possible explanation for milk prices is the claim that American dairy cows produce 72% more milk than they did in 1985.
Remember, the CPI is not intended to be applied to individual items, it’s meant to represent the cost of living, so we shouldn’t expect that over 50 years, every item should have changed in price by exactly 707% (that would be a perfectly planned economy — the Soviets tried that and we know how well that worked out). But as a general estimate, I’d say the CPI works pretty well — a credit to the folks at the Bureau of Labor Statistics, and a reminder that your tax dollars are (well, sometimes) effectively used.
