Historical Average CPI

[nico08]

Hi. I am trying to determine a historical average CPI for the USA. The average would ideally include as many years as possible, anywhere between 50 to 90 I suspect would provide a representative average. I understand that many use 3 percent as an assumed rate of inflation, but I want to compare that number with the historical average CPI. If you know of a calculator that can provide this information, that would be great. The calculators I have seen are more designed to tell you what the value of money is between a start date and an end date and factoring in inflation. Also, are there any predicted trends regarding the future rate of inflation? Thanks.

 

[REWahoo]

Historical Inflation Rates: 1914-2014 | US Inflation Calculator

 

[NW-Bound]

The above site quotes $1 in 1914 as valued at $23.71 in 2014. That works out to 3.21% annualized inflation.

exp( ln(23.71)/100) = 1.0321

However, the actual inflation rate has persisted above or below that average value for long periods of several years, even a decade or more.

What is in store for us in the immediate next 10 or 20 years? Who knows? All we can do is hedge.

 

[Brett_Cameron]

there are several CPI values calculated by the Bureau of Labor and statistics and the historical data are available on their website.

The CPI series used for Income Tax Parameter inflation (brackets, exemptions, etc.) determination is CUUR0000SA0, All Cities average, All items, Base period 1982-1984 =100. The average year to year percentage change in the Index value for the Tax years 1916 to 2014 is 3.34%.

The CPI series used for Social Security COLA determination is CWUR0000SA0, All Cities average, All items, Base period 1982-1984 =100. The average year to year percentage change in the Index value for the Tax years 1976 to 2014 is 4.02%. This includes values of zero in place of the negative number calculated for tax years 2010 and 2011.

The values for each for the last 20 years are 2.45% for SS COLA and 2.45% for Tax Parameter inflation.

Pick your poison.

 

[nico08]

This is all useful information, thank you. It is not the average/number that I wanted to hear, but I guess being forewarned is forearmed, right?

 

[ERD50]

This is all useful information, thank you. It is not the average/number that I wanted to hear, but I guess being forewarned is forearmed, right?

...
However, the actual inflation rate has persisted above or below that average value for long periods of several years, even a decade or more.
...

Heed what NW-Bound has said - recall the old saw of the 6 foot tall statistician who drowned in a 4 foot average depth pool.

I would have killed for a 'historically average rate' mortgage back in the early 80's. I was 'lucky' to get a blended mortgage rate of ~ 17%.

-ERD50

 

[NW-Bound]

You were not as "lucky" as I was. I closed on my 1st home purchase out of school in April 1980. I was so happy to get a 14% FHA loan.

Then, the mortgage rate dropped after peaking at 18% perhaps. I refinanced twice before selling that home in 1986.

 

[photoguy]

You may also want to compare the 3% to the expected future inflation based on tips prices.

 

[ERD50]

You were not as "lucky" as I was. I closed on my 1st home purchase out of school in April 1980. I was so happy to get a 14% FHA loan.

Then, the mortgage rate dropped after peaking at 18% perhaps. I refinanced twice before selling that home in 1986.

I was 'lucky/smart' that it was an ARM. Adjustable Rate Mortgages were considered way 'out there' at the time, I recall the Realtor referring to 'ARMs' as 'Animals'.

My rate automatically went down, down,down, after a single month of an increase. I forget what I was paying throughout, but it was always some x.x% below whatever index they used. Worked out well, and it wasn't too much of a stretch to afford it, with two incomes, no kids at the time.

-ERD50

 

[Chuckanut]

I was 'lucky/smart' that it was an ARM. Adjustable Rate Mortgages were considered way 'out there' at the time, I recall the Realtor referring to 'ARMs' as 'Animals'.

My first mortgage was an ARM. It was 1.6% above the one year T-bill rate. At that time interest rates were in the double digit area and my first year rate was 12 3/4%!!!

Ten year T-Bills were about 10 1/2%, IIRC.

In later years, I kept my mouth shut and watched as it fell, fell and fell. I had to give it up when I sold the house and moved out of state. I was almost 3% below the 30 year rate at that time. But, I did manage to keep a few double digit 10 year T-bills until they matured.

That ARM was probably the 2nd best loan I ever had.

 

[wmc1000]

For all of my retirement spreadsheet number crunching I assume annual cost of living increase will be 1% greater than my investment and SS returns/increases. Gives me a comfort level in my planning.

 

[audreyh1]

Here are some charts. I think somewhere this site gives 2.85% as the average annual inflation rate over the past near century. Something like that.
Average Annual Inflation Rate by Decade

 

[youbet]

OP......

As others have said, be very, very careful about using average rates of inflation in your planning. "Sequence of Events" is key when using inflation data and retiring into a period of high inflation can be more detrimental to your financial well being than retiring into a down market.

 

[target2019]

The backtest spreadsheet over at Bogleheads provides CPI-U back to 1972.
That's only 40 years, but it nicely aligns with other historical data in the spreadsheet.
Simba's backtesting spreadsheet - Bogleheads

 

[nico08]

When I look at that website, http://inflationdata.com/Inflation/Inflation/DecadeInflation.asp, I see average annual inflation from 1913 to 2013 as 3.22%.

 

[audreyh1]

When I look at that website, Average Annual Inflation Rate by Decade, I see average annual inflation from 1913 to 2013 as 3.22%.

There you go then. I think that was what you were looking for, right?

 

[nico08]

There you go then. I think that was what you were looking for, right?

Yes, thank you audreyh1.

 

[Lsbcal]

You may also want to compare the 3% to the expected future inflation based on tips prices.

Good point. Tips are the market's best future guess i.e. tips minus the nominal bond rate.

 

[nico08]

Good point. Tips are the market's best future guess i.e. tips minus the nominal bond rate.

I found the following statement-

Inflation breakeven rate. With the nominal 10-year Treasury currently trading at 2.55%, this sets up a 10-year inflation breakeven point of 2.18%. This means that if inflation averages more than 2.18% over the next 10 years, this TIPS will outperform a traditional Treasury. An inflation breakeven point below 2.2% is fairly attractive.

Does this indicate that TIPS are suggesting that the future inflation rate may be 2.18%?

 

[Lsbcal]

Yes, this is the (massive real money) bond market's current guess.

 

[nico08]

Yes, this is the (massive real money) bond market's current guess.

Thank you Lsbcal. I learn a lot here.

 

[Richard4444]

When I use the CPI as a guide to determine what my future costs will be for planning purposes for many years; ~3% higher each year ..... I know that my personal cost of inflation is largely determined by myself. That helps !

 

[Lsbcal]

I worry most about inflated expectations.