The Consumer Price Index (CPI) decreased by 1.3 during the 12 months ending in May, according to data released last week by the Bureau of Labor Statistics. This was the largest decline since 1950. It’s also a huge swing from a year ago, when the rate of price inflation topped five percent.

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The Federal Reserve’s Federal Open Market Committee, which sets monetary policy, has said that it expects price inflation to remain subdued, due to increasing economic slack here and abroad.

Even moderate rates of price inflation, if they persist, can greatly erode the purchasing power of the dollar over time. Over the past 10 years, the annual rate of price inflation averaged 2.7 percent, which sounds relatively low. The cumulative result, however, is that the general price level rose by 28.7 percent. To buy what a dollar bought in 1999, the average consumer now needs $1.29.

The increase in the average price level masks wide variation in the price changes for specific items. The table below shows a breakdown of price changes over the past year and the past 10 years, by major categories of goods and services.

Other reading:

The AIER Cost-of-Living Guide reviews trends in price inflation back to 1800, with a particular emphasis on changes since the 1970s. It includes a table that shows you how to convert prices from any year since 1920 to the present day. The 2009 Cost-of-Living Guide is available free to AIER subscribers or $2 for non-members.

The April 6, 2009 issue of Research Reports includes a detailed table showing how much the CPI and dozens of the goods and services included in it changed, in percentage terms, in 2008. The biggest drop: gasoline prices, down 43 percent. The biggest increase: potatoes, up 22 percent. This Research Reports issue is available free to AIER subscribers or $2 for non-members.

Use AIER’s Online Cost of Living Calculator to see how much the general price level has increased since any year going back to 1913. 

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