We went to Target the other day for groceries and the bill came to $150. As we walked out to the Jeep to bring things home, my wife said, “I don’t even know what things are supposed to cost any more. Was that a good deal or did we overpay by a lot?”
I agreed that inflation – year after year after year – begins to warp our understanding of what things should cost. Especially lately, as prices are going up more quickly. The overall CPI is up more than 5% and ABC’s Good Morning America reported last week that Thanksgiving Dinner foods were up 14%.
When prices are moving that quickly it’s easy to lose track of what is a good value and what is not. Truth is that I pay less attention to what things cost now than I did when we first got married and needed to live a thriftier lifestyle. I still have a “reference price” context of thirty years ago for many things, which isn’t helpful after 3 decades of government debt-fueled inflation.
As a rule of thumb, I proposed to my wife that we simply cut the prices in half in our mind and check and see if that would have seemed reasonable to us in the past. After all, there has been almost exactly 100% inflation since we got married in 1990. It’s the perfect time to use a 2x factor (until next year!).
For example, a movie ticket might be $12 now – which seems very high – but would have been a very ordinary $6 back in the day. That makes the new price seem more reasonable. A gallon of milk was $2.50 back in the 1990s and now it is close to $4 – actually a good deal, historically. A shirt at a department store that is $60 today, would have seemed typical at $29.99 back in the 1990s. That quick comparison helps the new prices make more sense to me.
To kick it up a notch, my new Jeep Wrangler was $42K, but that’s not crazy considering we paid $28K for a new Honda Accord back in 1996. In fact, a brand new Honda Accord in 2021 comes in at $43K – almost perfectly matching the 68% general inflation over the last 25 years. It’s amazing how closely some things track over decades, isn’t it?
Like anything, the value of a price is completely in the eye of the beholder. The problem is just that we have “old tape” that we’ve been using to judge things, which makes everything look expensive. Hopefully, our 2x 1990 rule-of-thumb will help us get a feel for things again. Otherwise, even though we have more discretionary spending power than ever, we’ll be increasingly disappointed every time we go to buy something.
Have you adjusted well to years of inflation, or does everything seem too expensive compared to what it once was?