Inflation Rates

Determining individual prosperity in the early 1800 is also hindered by the lack of data on inflation, which measure how much money one needs to purchase a certain fixed “basket of goods or services.” Thus while one’s income may be rising, if prices are increasing faster, prosperity is actually eroding.

The most common cause in inflation (or the “cost of living”) is an increase in the money supply flowing into the market from the government. By definition, more dollars in circulation reduces the buying power of each dollar.

Inflation can also result from a reduction in the supply of goods. A drought in Iowa could lower the bushels of corn produced and up the price for each ear.

Either way, increases in inflation have a negative effect on a nation’s economy. It leads to higher interest rates on loans, lower investment levels and even unemployment.

Thanks in large part to the work of data scientist Ian Webster, The Bureau of Labor Statistics has published estimates of the inflation rates going back to America’s very early days. The table below highlights sudden jumps in the annual rates and relates them to possible causal events at the time.

16.0 Estimated Spikes in U.S. Inflation Rates