Is there an easy way to correct for inflation?
Dear Straight Dope:
I would like to learn how to convert a specific dollar amount from the past to its present value. Better yet, I would like to know if there is a website that will allow me to input a past value and a specific year and obtain the equivalent value of the given amount in another year. An example would make this clearer: In King Kong (1933), one of the characters says that they had taken in $10,000 in ticket sales for the opening night of King Kong's Broadway display. I would like to know how to calculate the equivalent value of $10,000 in the year 1933 in 2003 dollars. (I would also like to be able to perform this calculate for other years.) As you know, the issue of money comes up fairly often in films. I think it would help to gain a greater understanding of a character's motivation if we know how much is a stake in terms that are relevant to the present day viewer.
You've picked a good example, Veronica, but there isn't a single answer to the question.
The obvious thing to do is to inflate the $10,000 by the consumer price index (CPI), which is updated monthly by the Bureau of Labor Statistics of the U.S. Department of Labor. The CPI measures the movement in the average price of a bundle of goods and services bought by a typical consumer. The BLS provides an online calculator that enables you to adjust for inflation for any pair of years between 1913 and the most recent year for which statistics are available. If you'd rather do the calculation yourself, the CPI website lets you generate tables for any desired date range. What you're probably most interested in is the "Consumer Price Index--All Urban Consumers."
Comparisons over long periods of time are tricky for several reasons. Some prices might rise more than average for many decades. The quality of some goods might have changed a great deal in ways that are difficult to quantify. Some goods available now did not exist in 1933. So whilst $10,000 in 1933 equals $147,000 in 2004 when inflated by the CPI, you need to be cautious in interpreting this number.
Then there's the issue of whether "How much could you buy with the $10,000?" is the right question. Another question you might ask is "How much could you buy with the labor needed to earn $10,000 in 1933 if you had an ordinary schlub's paycheck?" Inflating the $10,000 using the unskilled wage index gives us $423,000 in 2003 dollars (latest year available). That number may not convey much, so let's take the comparison a little further: If you're currently a $10-an-hour wage slave, earning the equivalent of King Kong's one night haul will take you more than 21 years.
Still another approach is to ask how big a deal this was in the economy of the time. You can find this by dividing the $10,000 by the gross domestic product (a measure of the output of the economy) of 1933 and then calculating what amount of money would be the same proportion of today's output. Doing this yields the impressive result that $10,000 in 1933 is $1,940,000 as of 2003. In other words, if while conversing with your fellow moguls in the Hamptons in 1933 you let it slip that you'd taken in 10 grand for a night's work, they'd be as impressed as if you told them today that you'd pulled in close to two million bucks.
There are lots of other ways you could do this. Which number is better depends on the question you're asking. The answers vary so much because the size and structure of the economy has changed so much and because averages never tell the whole story. You can see why in more detail as well as use the calculator at http://www.eh.net/hmit/compare/.
Samuel H. Williamson, "What is the Relative Value?" Economic History Services, April 15, 2004, http://www.eh.net/hmit/compare/. Thanks to Jonathan Woodall for pointing out this link in a recent Straight Dope Message Board thread, http://boards.straightdop e.com/sdmb/showthread.php?t=259106.