Average US Inflation Over Time

I mean come on…

Inflation is just mean to investors.  It’s also the reason why we can’t just leave all our money under the mattress.  Every year if we leave our money alone it’s worth less (especially if you’re reading this in Zimbabwe → “Mhoroi Zimbababweans”).  Everyone has had some experience where their parents (or grandparents, boss, whoever) has said “when i was your age, this taco cost a quarter, and it came with a drink”.  And now are taco’s are a dollar OR MORE.  Why is that you ask?  Well because our taco’s are 4x better than theirs.  No, but really, we have tacos with Doritos shells. I mean come on.

But inflation is a byproduct of a good capitalist economy.  A small amount of inflation creates a need to invest your money to hopefully exceed inflation. It helps stimulate the economy and avoids the mattress dwellers.

How much should you estimate for inflation?  Well 3.0% per year sounds like a good number. Let me drop some math on you and explain why.

The table below actually shows the average for inflation averaged over the last 66 years (we use CAGR to calculate averages).  This roughly follows the modern economy after World War 2.  And it seemed as good a place as any to show you that since the 80’s (“by the power of greyskull”) the US economy has been more stable and inflation if anything has been mellowing out.

Inflation over a shorter timeframe

As you can see, inflation averages around 3.5%. So where did we get 3.0% from? Well if we shorten the timeframe (I’ve already heard a gasp from all the statisticians in the room and the low chant of “cherry-picking data” has begun) to the last 30 years inflation is only 2.65%. So the economy has been a lot less volatile.  Since 3% is sort of in the middle, and i’ll remember it easier, that’s what we’re going with. If in the next few years I see inflation start to tick up i’ll revise this part and tell everyone that I saw it coming.

What does this mean to me?

Well remember when you were younger, and candy bars were so big, and so cheap. And now they’re expensive, and they’ve seem to have gotten smaller. Well they have gotten smaller (it wasn’t just your child like eyes perceiving the candybar to be the size of a old school cellphone, that really happened).  That’s inflation. Every year it eats 3% of your candy bar.

Also, it means if you leave your money in the bank, expect to lose 3%.  Every… Single… Year…

See, i told you inflation sucked. But deflation sucks way more so I guess we have the lesser of two evils here.

 

Too long, didn’t read:

Doritos tacos are awesome,  candy bars are smaller and…

Since the last World War, US inflation has averaged roughly 3.5%. But in the last 30 years the US has been an even safer investment with inflation averaging 2.65%. For future calculations, we’ll assume inflation in the 3.0% range since that’s easy to remember, and fits the data.

“cherry-picking… cherry-picking… cherry-picking”