22 March 2016

Speaking Of Inflation...

Economists like to say that 3% annual inflation is good.

What that means is something that costs $1.00 today will cost $1.03 next year.

What most people don't notice is how fast that builds up.

Year 0: $1.00
Year 1: $1.03
Year 2: $1.06
Year 3: $1.09
Year 4: $1.13
Year 5: $1.16
Year 6: $1.19
Year 7: $1.23
Year 8: $1.27
Year 9: $1.30
Year 10: $1.34

So in ten years, things are 34.3916379% more expensive, or your dollar now has the buying power of 74.4¢ compared to where you started.

Let that 3% inflation run for 20 years...

Now it takes $1.81 to buy what used to cost a dollar.  Our buck is now worth 55.4¢.

30 years...

$2.43 to get what a buck used to get and 8 bits are now worth less than 4 bits (41.2¢).

$3.26 to buy a dollar's worth of goods 40 years on bringing the value of our greenback down to a mere 30.7¢.


3 comments:

  1. I bang on this drum every chance I get. Some academic came up with the idea that this would be "persistent benign inflation". Benign!?! Only a Ph.D. could be that stupid.

    They say that over the past 10 years, savers have lost nearly $8 trillion, extracted from them by the Fed’s ZIRP coupled with real inflation measuring 8 to 10%, not the 2% they're claiming. How the heck do you save enough to retire with your savings evaporating like that? You should be earning money on savings, not losing it.

    ReplyDelete
    Replies
    1. I know that the household income is increasing in step with the official rate, not the actual, so year on year we can't afford as much as we used.

      Delete
  2. Which is about where we are now... And wages haven't kept pace.

    ReplyDelete

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