Many people feel that, even with full-time work, they simply don't have the income necessary to live the lives they want. Even when it comes to just the basic essentials such as food, rent, car payments, or tuition fees, it can often seem that a dollar today just doesn't buy what it should. As it happens, this isn't just economic paranoia. In fact, the prices for daily goods have increased considerably since 1998, above and beyond what can be accounted for by inflation, giving the dollar much less buying power than it had just 20 years ago.

Key Takeaways

  • The dollar's buying power is less than what it was 20 years ago, meaning what you earn doesn't stretch as far as it once did.
  • Government statistics show that while household income has been steadily increasing, it has failed to keep up with the pace of inflation.
  • In addition, the cost of buying items like houses and automobiles has increased at a rate that outpaces the rise in inflation.

What the Statistics Show

The Bureau of Labor Statistics keeps track of annual inflation rates and is a great resource for comparing today's prices to those of yesteryear. A metric called the Consumer Price Index (CPI) is especially useful. This metric measures the average price change over time of all consumer products purchased in urban areas. While not exactly a cost of living index, the CPI is an excellent indicator of inflation and is widely used to inform public policy and legislative changes in programs such as Social Security.

Rising Inflation and the Dollar

The BLS also makes available an inflation calculator to find out how much inflation has degraded the dollar during a certain period. For example, according to the most recent data collected by the BLS, current as of January 2021, what would have cost $20 in 1999 would now cost nearly $31.

Because wages, Social Security payments, and taxes are adjusted for inflation annually, however, it would seem that while things may cost more than they did 20 years ago, people should, in theory, be making more money to pay for those things. The information provided by the CPI doesn't show the cost of living change directly, but the amount of price change that is not attributable to inflation can be extrapolated from the CPI figures.

Inflation Examples

For example, the Bureau of Census reports that the average price of a new home in January 2000 was $194,800. According to the inflation calculator, that price in January 2021 should be $301,873. The same report places the average sale price for January 2021 at $408,800, more than 35% higher when accounting for inflation alone.

The same method can be applied to see if household incomes have similarly increased. The median household income in 1999 was $42,000, according to the Census Bureau. According to the inflation calculator, that price today should be $65,899 in January 2021. The most recent year with full data available is 2018, which places household income at $63,179, meaning that it has failed to keep up with inflation and is 5% below where it should be.

The average cost of buying a new car in 1999 was $20,686; adjusted for inflation, that price today should be $31,874. However, according to Kelly Blue Book, the average cost of buying a new car in May 2019 was $37,185, 14% higher than the price when accounting for inflation.

The Bottom Line

Taken together, these figures indicate that, while the average person is still making the same amount of money when accounting for inflation, prices for many of the daily necessities have gone up considerably, which means that each dollar earned does, in fact, buy less than it did 20 years ago.