Can We Rely on the CPI Inflation Calculator?

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Let’s take a look.  When I was 16 years old and starting to drive my car, a gallon of regular gas where I lived was 24.9 cents.  Given that, I can use the CPI Calculator to find out what I should be paying for a gallon of gas now (1965 then, 2014 now) – correct?  NO!  Why not?  Well, one reason is the United States deregulated oil in 1973.  Before that, they kept oil prices falsely low.  So, in 1973 oil prices jumped.  Since then, we have been gas has been controlled by OPEC and the cost of their oil.

Can we rely on this calculator, then?

So let’s try another test.  How about the cost of a gallon of gas after the deregulation.  Gas prices in 1975 were 56.7 cents.  So, according to the CPI calculator we should be paying $2.47 per gallon but an average gallon of costs $3.46 today – about $1 more than indicated by the CPI calculator.

Let’s try something other than gasoline which obviously does not compute!  Let’s try 5 pounds of flour.

In 1950, 5 lbs of flour costs 49.1 cents and today costs $4.78.  Let’s test the CPI Calculator:

Well that worked.  The CPI Calculator says $4.77 and the grocery store says $4.78 for 5 pounds of flour.

So, let’s do one more test.  Let’s try a bushel of corn.  In 1950, corn was selling for $1.13 and $5.10 in 2014.   Again, let’s test the CPI Calculator:

Still does not work!  Probably affected by farming techniques and increased yields.

One more test.  The minimum wage in 1950 was $0.75/hour.  It is now $7.25/ hour.  Let’s do one more test of the CPI Calculator:

This one works.

User beware!

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