For all of my previous posts where I’ve done year-by-year analysis, I haven’t been adjusting for inflation. There are two facts that when combined together create a very compelling reason of why I haven’t done so. Those two facts are 1) Adjusting for inflation is extra work and 2) I am lazy. QED: I didn’t adjust my figures for inflation. However that’s going to start changing especially as I start comparing history and not just program to program.
For those who don’t know. Inflation is just the term used to describe the general rise in prices over time. See Wikipedia for more.
There are several ways to measure inflation. There’s the consumer price index, the producer price index, Core Price Index, etc… There are also several organizations that measure inflation. Just in the federal government both the labor department and the commerce departments keep track of inflation.
For my part when ever I do an analysis on this site I will be using the Consumer Price Index(CPI) as compiled by the Department of Labor. Also, I will be using only the yearly averages that averages all the markets. This makes the most sense to me since most of my charts are based on years and apply to the whole country. I could have chosen the Core Priced Index because it’s less volatile, but I figured since I’m using only the yearly average that it won’t be a problem.
However, there is one problem. The CPI yearly is averaged over a calendar year, not the Fiscal Year. This is going to cause a bit of a skewing. However, since the skew will exist for every year, I don’t think it’ll cause too much trouble when viewing long term trends. If someone has a better way of handling this I am open to suggestions.
So how does one account for inflation using the consumer price index? Well, the CPI was benchmarked in 1982-1984 and it was set to 100 even that year. So for any other year, whatever the CPI is, that’s the number of dollars it would take to equal 100$ of the benchmark. So, to measure something in let’s say defense spending in 1962 by 2008 dollars, I would take the amount spent on defense in 2962 multiply it by the annual CPI in 2008 and divide by the 1962 annual CPI. One can also calculate the rate of inflation using these numbers, but the Dept. of Labor has already done that for us.
Expect data series measuring time to start getting adjusted for inflation more and more from now on.