TIP OF THE WEEK – A Quick Way to Measuring Price Inflation between any Two Years

A Quick Way to Measuring Price Inflation between any Two Years

Jason Brizic

Mar. 11, 2011

The Federal Reserve, the US central bank, inflates the money supply by purchasing assets with money it creates out-of-thin-air.  An increase in the money supply (inflation) leads to higher prices of goods.  Think “more money chasing the same amount of goods” when you hear the word inflation.

Housing, stock, bond, and commodity prices are affected by central bank inflation of the money supply.  Long term investors must understand the horrible effects of inflation on their savings/investments.  Inflation erodes the purchasing power of your money.  Your savings/investments that are denominated in dollars are exposed to dollar inflation such as QE1 (late 2008), QE2 (late 2010)…QE3 (2012?).

The government’s Bureau of Labor Statistics intentionally understates real price increases by changing the method of CPI calculation.  They do this because it makes their ponzi schemes (e.g. Social Security, Medicare, and government pensions) solvent a few years longer.  There schemes would go into the red many years earlier if the BLS kept its methods of calculating the CPI constant since the Carter administration.  Here is the link the BLS inflation calculator:


I double the result that I get from the BLS inflation calculator as a rule of thumb because of their deliberate understating real price increases.

Here are a few examples:

According to the US Census Bureau the median US home price in January 1973 was $29,200.  What is the equivalent price in today’s 2011 dollars due to 38 years of central bank inflation?  Answer: $144,831.34 per CPI.  $288,000 according to my rule of thumb.

Gold cost $850/oz. near its peak in 1980.  How much is that in today’s inflated dollars?  Answer $2,271.  $4,400 per my rule of thumb.

One last example, an investor puts $10,000 into a money market account after the dot.com crash in 2000.  How much does he need in today’s debased dollars to have the same purchasing power as in 2000?  Answer: $12,788 according to the BLS.  I say 24,000 per my rule of thumb.  My rule makes less sense the shorter the time interval due to less time to compound the price increases.

For more tips, go here:


Published in: on March 11, 2011 at 3:59 pm  Leave a Comment  

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