Friday, July 25, 2008

Calculating the Effects of Inflation

Use the Bureau of Labor Statistics inflation calculator to see how 2008 dollars compare to other yearsThe phrase "Consumer Price Index" can be intimidating and unclear to Americans. It's an economic term, after all, and not a part of everyday American language.

It even has its own abbreviation to add to the confusion -- CPI.

So, when a layperson hears that "CPI is rising", it's not always clear what it means. The tendency, therefore, is to ignore the news.

This is one reason CPI is commonly substituted with the more down-home expression of "Cost of Living".

In contrast to the term "CPI", the phrase "Cost of Living" is a lot more clear. When people hear that the Cost of Living is rising, instinctively, they get it. And now they can see how it works in numbers, courtesy of the Bureau of Labor Statistics.

The Inflation Calculator at the government Web site helps a person compare household income to the changing Cost of Living between any two years since 1913. For example, a U.S. household earning $48,201 in 2007 would have to increase that income to $50,868 just to keep up with "life".

CPI touched a 17-year high in June, jumping 5.000 percent year-over-year. Without a 5.000 percent increase an income, a household falls behind.