The Real Cost of Inflation: A Broader Overview

Inflation affects every aspect of economic life; from the groceries we buy to the communities we live in. Unfortunately, most of us have seen it in real life over the past few years now. It is a phenomenon that can erode purchasing power, distort economic planning, challenge living standards, and, yes, affect the HOA dues many of us reading this article must pay. 

This article provides a perspective on how inflation has impacted the cost of assorted items over the decades, using historical data to illustrate changes and trends. By examining the cost of everyday items such as milk, gasoline, housing, and education from the 1960s to today, we can gain deeper insights into the true economic impact of inflation and our future financial foundations.

Understanding Inflation

Inflation refers to the rate at which the general level of prices for goods and services rises, and subsequently, how purchasing power is falling. Simply stated, it is the increase in the prices of goods and services over time. For thousands of years, it has reduced the purchasing power of money, meaning that each unit of currency buys fewer goods and services. While moderate inflation is a sign of a growing economy, high inflation can be detrimental, leading to economic instability. Central banks (i.e., The FED) attempt to limit inflation — and avoid deflation — in order to keep the economy running smoothly.

Historical Prices: The 1960s versus Today

The 1960s are often remembered as a period of economic stability and robust growth in the United States. During this decade, the annual inflation rate averaged approximately 2.24% per year. The era was marked by a post-war boom, the rise of consumerism, and relatively stable energy prices, at least until the late 1970s.

1. Food and Beverages

Milk: As mentioned previously, a gallon of milk cost about $0.49 in the 1960s, equivalent to $4.14 in today’s dollars. Today, it costs around $3.50 on average, showing a relatively stable price when adjusted for inflation. 

Eggs: In the 1960s, a dozen eggs cost about $0.57, or roughly $4.82 in today’s dollars. The current average price is about $1.50 to $3.00, depending on the region and quality, indicating a significant decrease in real terms. Many of these commodities are also subsidized by the government, helping keep the cost in check for the average consumer.

2. Energy

Gasoline: The price for a gallon of gasoline was around $0.31 in the 1960s, equal to about $2.62 today. Current prices average anywhere from $3.80 – $7.00, reflecting greater volatility and increases due to geopolitical factors and changes in the oil market.

3. Housing

Home Prices: The median home price in the 1960s was approximately $11,900, which translates to around $101,000 in today’s dollars. As of recent data, the median home price in the U.S. is about $374,900, illustrating a significant rise in housing costs, outpacing general inflation.

Maintenance Fees: Most HOAs in the United States have seen substantial increases in fees, however there are many communities that have attempted to keep their fees low only to now see the need for special assessments and major increases in dues to keep pace with inflationary trends.

4. Education

College Tuition: In the late 1960s, the cost of attending a public four-year college was significantly lower compared to today. For instance, in 1963-64, the average annual tuition for public colleges in the United States was about $243, which when adjusted for inflation, is approximately $2,050 in today’s dollars​ (National Center for Education Statistics)​.

By contrast, the average annual tuition for a public four-year college today is substantially higher. As of the 2022-2023 academic year, the average tuition, and fees for in-state students at public four-year institutions stood at about $9,400​ (ClickAmericana.com)​.

This stark increase in tuition and fees at public colleges and universities highlights a growth rate that far exceeds the general inflation rate over the same period. This change can be attributed to a variety of factors including reductions in state funding, increases in university expenditures, and the rising demand for higher education which has dramatically transformed the financial landscape of college education in the U.S., indicating a dramatic increase that far surpasses inflation rates.

Broader Implications of Inflation

Unfortunately, inflation’s impact is felt across all sectors of the economy:

Wages and Salaries: If wages do not keep up with inflation, purchasing power and standard of living decline.

Savings and Investments: Inflation can erode the real returns on savings and investments, making it harder to save for retirement or other goals.

Income Disparity: As the cost of essential goods like housing and education rises faster than general inflation, it can widen the gap between different income groups, affecting lower-income families disproportionately.

Retirement Planning: The rising cost of living can complicate retirement planning, as savings may not keep pace with inflation, eroding the purchasing power of retirees.

Economic Policy Challenges: Policymakers face challenges in managing inflation without stifling economic growth. Strategies include manipulating interest rates and adjusting monetary supply.

Conclusion

The comparison of historical and current prices of everyday items like milk, gasoline, homes, and tuition fees offers a clear view of how inflation affects various aspects of our lives. Understanding the actual cost of inflation involves looking at both nominal price changes and actual price changes adjusted for inflation. While the prices of items like milk and gasoline have increased nominally over the decades, the actual costs adjusted for inflation offer a more nuanced view. This brief analysis not only sheds light on the economic conditions of the past and present but also underscores the complex nature of economic policy in managing inflation. Ultimately, maintaining economic stability in your nest egg, retirement, or community association in the face of inflation requires a careful and informed approach to monetary policy, investing, and the future.