Flutterby™! : musings on inflation 2010-11-16 17:10:09.116411+00

musings on inflation

2010-11-16 17:10:09.116411+00 by Dan Lyke 9 comments

A random observation: I believe that when I was in high school, I'd stop at the ice cream shop on the way home from long bike rides and get a super tall soft-serve ice cream cone for roughly $.75. I think that's about $2.75 or $3.00 nowadays.

On Sunday I went out to run an errand, forgot my cell phone, and had to call Charlene from a pay phone. The first pay phone I found was $.75, the one that actually worked was $.50. Pay phones were $.10 in that same era.

Interestingly, Zillow puts the house my parents sold in the middle of my senior year of high school for what I think was on the order of $195k at $392k (it was over $500k when we were house shopping three years ago).

So, pulling some numbers out of my ass, it's been 25 years or so, a quadrupling in prices for those goods suggests inflation has been just about 5% in that period (using the old back of the envelope Rule of 72), which sounds about right to me.

Which, if that's our standard, means that house prices have not kept up with inflation, nor have salaries.

#Comment Re: Quantitative Easing? made: 2010-11-19 13:02:13.632859+00 by: jeff

I think the lesson is that make sure your money in "savings" is invested in such a way that it's got some inflation hedge in it.

And inflation is only gonna go up since Obama has decided to "not raise our taxes" for all of the government programs. He is, however, going to print more money to pay for such things, essentially giving us Americans an "invisible tax" by devaluing our money.

I guess the 1 good thing about inflation is long-term debts aren't so bad, but they make life harder for those of us who actually put money into savings. I wonder if there will ever be a day in which the value of the dollar actually increases...

So that calculator is only giving me 2x from 1985 to 2010, which is about half of what I think I'm observing.

It gives results that are quite similar to other inflation calculators available.

#Comment Re: made: 2010-11-16 22:32:29.724998+00 by: ebradway [edit history]

Mark: Large purchases, like houses, have scaled up because they are now typically made based on two incomes. Plus, interest rates are much lower. My parents bought their first house in 1980. My mother did not work. Their mortgage was 13% APR.

And yes, the sub-prime problem was an attempt to shoe-horn large mortgages into small incomes.

#Comment Re: made: 2010-11-16 22:12:43.640519+00 by: Mark A. Hershberger

If salaries haven't scaled up (I think the consensus is that they haven't) then I don't see how large purchases like houses could have scaled up. Incidental expenses like phone calls and ice cream, though, could easily eat up more disposable income. I suspect a large part of the sub-prime problem was caused by the problem of trying to adapt larger housing prices to incomes that were, relatively speaking, falling.

Yeah, one of the things I considered was that my ice cream costs are comparing upscale (Fairfield County) northeast to upscale (Sonoma and Marin Counties) west coast, but if I compare housing across those markets it's quite possible that you couldn't get into that house for less than a million two or so out here in Sonoma.

I might suggest that a 25-year old ice cream cone would be worth less than $2.75.