Long Term U.S. Inflation

1,929% Inflation!

The Chart to the right shows the Annual Inflation Rates for each decade. Each bar represents the average Annual Inflation for the decade (not the total cumulative inflation for that 10 year period ).

The final Yellow bar shows the average annual inflation rate since the government began tracking it in 1913.

As we can see the Average annual inflation rate is 3.43%. That doesn't sound too bad until we realize that at that rate prices will double every 20 years.

That means that every two bars on average prices have doubled or about 5 doublings since they began keeping records.

Five Doublings sounds like prices increased by 10 times right? But it gets even worse than that! Because it isn't just a arithmetic doubling it is compounded. So just as compound interest can multiply your savings, compound inflation can multiply the effects of inflation.  As you can see from the cumulative Inflation chart since 1913 we have seen 1929% inflation.

Yes, that is right One Thousand Nine Hundred Twenty Nine percent inflation.

It is difficult to wrap your mind around 1900% inflation. But that means that prices increased by 1900%  or they cost 20 times more.

When inflation is in the single or double digits this concept is easier to follow. For example from January 2005 to January 2006 there was 3.99% inflation. That means that something that cost $100 in January 2005 would cost $103.99 in January 2006.

In other words you add the increase due to  inflation to the original amount.   So if we have  1929% inflation, something that cost $100 in 1914 would cost $2029 now. ($100 + $1929).

Something that cost $100 in 1914 would cost $2,029 now!

Example prices: The Model T was first produced in 1913 and sold for $575.  Ford continued to produce the same model until 1927. By 1927 however through mass production Ford was able to reduce the price of a Model T to $290.  In 1927 Ford introduced the Model A which ranged from $385 for a roadster to $570 for the top-of-the-line Fordor. In 2006 the MSRP for a  Ford Focus is $14,995.

Using our previous formula:
 $575 + 1929%= $11,666.75

So whenever someone mentions 3% inflation as being low remember compound interest can work for you... but compound inflation can work against you too!

(click to see larger image)

Cumulative Inflation by decade
(Click for larger image)

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