CPI Applied Analysis

The Consumer Price Index attempts to give us an indication of how much a basket of goods costs over time. Although there are some shortcomings such as deciding what goes into that basket and adjusting prices to reflect changes in the quality of those goods, it is the best measure we have. The table below gives January CPI numbers from 1913 through 2003.

Year	Jan. CPI	Year	Jan. CPI	Year	Jan. CPI	Year	Jan. CPI
1913	9.8	1976	55.6	1988	115.7	2000	168.8
1920	19.3	1977	58.5	1989	121.1	2001	175.1
1930	17.1	1978	62.5	1990	127.4	2002	177.1
1940	13.9	1979	68.3	1991	134.6	2003	181.7
1950	23.5	1980	77.8	1992	138.1	2004	185.2
1960	29.3	1981	87	1993	142.6	2005	190.7
1970	37.8	1982	94.3	1994	146.2	2006	198.3
1971	39.8	1983	97.8	1995	150.3
1972	41.1	1984	101.9	1996	154.4
1973	42.6	1985	105.5	1997	159.1
1974	46.6	1986	109.6	1998	161.6
1975	52.1	1987	111.2	1999	164.3

a. What was the annual inflation rate from Jan. 2002 to Jan. 2006?

b. What was the annual inflation rate from Jan. 1980 to Jan.1981?

c. Based on the table above, $100 of goods in 1913 cost how much as of Jan. 2006?

d. Based on the table above, $100 of goods in 1960 cost how much as of Jan. 2006?

Alternatively, we can see how much $100 of goods today would have cost in the past.

e. Based on the table above, $100 of goods in Jan. 2006 would have cost how much in 1913?

f. Finally, if you had watched the Austin Powers movies, you may have noted that when Dr. Evil came back from his cryogenic state and was going to originally ask for a ransom of “One Million Dollars!” he got lots of murmuring and little response from his evil colleagues. Thus, even Hollywood understands that one million dollars isn’t what it used to be. To be as well off as a millionaire in 1950, how much would you need today? When you calculate this value, keep this in mind in your retirement plans. If you are planning on retiring in 30 or 40 years, $1 million dollars 30+ years from now will likely not go nearly as far as you think.