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Historical Inflation

Inflation is not constant... not exactly breaking news, I know.

However, if I am trying to project future inflation so I can decide if my retirement funds are growing quickly enough, its handy to know what historical inflation has been.

In a previous post (https://seekingalpha.com/instablog/134376-kiisu-buraun/852671-would-a-dogs-of-the-dow-retirement-portfolio-survived-the-last-12-years) I looked at historical inflation through the eyes of a new retiree in the year 2000. In the post, I looked back 10, 20, 30, 40 and 50 years to get an estimated inflation rate and used that rate to increase withdrawals from a retirement portfolio.

However, it is now mid 2012, not 2000 and I thought it might be interesting to see what has happend to our money.

Years Date Cumulative Inflation Dollars CAIR
-- 31.Dec.2011 -- $100.00 --
1 31.Dec.2010 2.96% $102.96 2.96%
2 31.Dec.2009 4.50% $104.50 2.23%
3 31.Dec.2008 7.35% $107.35 2.39%
4 31.Dec.2007 7.44% $107.44 1.81%
5 31.Dec.2006 11.83% $111.83 2.26%
10 31.Dec.2001 27.71% $127.71 2.48%
15 31.Dec.1996 42.29% $142.29 2.38%
20 31.Dec.1991 63.65% $163.65 2.49%
30 31.Dec.1981 140.08% $240.08 2.96%
40 31.Dec.1971 449.08% $549.08 4.35%
50 31.Dec.1961 652.24% $752.24 4.12%
60 31.Dec.1951 751.59% $851.59 3.63%
70 31.Dec.1941 1,355.95% $1,455.95 3.90%
80 31.Dec.1931 1,455.70% $1,545.70 3.48%
90 31.Dec.1921 1,204.46% $1,304.46 2.89%
97 31.Dec.1914 2,134.38% $2,234.38 3.25%

InflationData (http://inflationdata.com/Inflation/Inflation_Calculators/Cumulative_Inflation_Calculator.aspx) provided the cumulative inflation data, and Investopedia (www.investopedia.com/calculator/CAGR.aspx) provided the CAGR calculator.

CAIR (Compound Annual Inflation Rate) is merely CAGR applied to inflation.

Examples help me understand. And I find the following examples enlightening:

For every $100 of buying power I had at the end of:

  • 2008, I would now need $107.35.
  • 2001, I would now need $127.71.
  • 1961, I would now need $752.24.
  • 1914, I would now need $2,234.38.

Thus, if we ignore taxes and my retirement projections are "golden" with a 3% inflation rate and future inflation mimics the recent sub 3% rate, all is well.

However, if in the future the CAIR creeps up and I don't adjust my projections accordingly, I can easily deceive myself with a rosy projection that does not meet reality.

And that could be "interesting."