Dear Editor:
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So far in the presidential debates and television commercials I have not been aware of any complaints about the declining purchasing power of our dollar. I suspect some folks may feel so strongly about it that they engage in fist fights over whether the current dollar is worth $.75 or $.85. Actually, they may both be right. It depends upon where you start to figure.
The economic principle involved is that the value of the dollar is inversely related to the prices of the things we buy. It’s difficult to measure the value of the dollar directly so economists start with the prices.
Every month the Bureau of Labor Statistics in the U.S. Department of Labor conducts a survey of prices in the United States. Then it constructs an index number which shows how much prices have changed since a base period, which is now the average of 1982-1984 prices. It is called the consumer price index (CPI) and the annual average of this consumer price index is given in the CPI column. This CPI is used to determine changes in the purchasing power of the dollar. What economists do is select a base year of their own and divide the value in the base year by the values of the other years in the series to be constructed. Then they multiply each of those numbers in column B by 100 to get the result in column C.
Year CPI B C
1990 130.7 1.000 100.0
1991 136.2 .960 96.0
1992 140.3 .932 93.2
1993 144.5 .904 90.4
1994 148.2 .882 88.2
1995 152.4 .858 85.8
1996 156.9 .833 83.3
1997 160.5 .814 81.4
1998 163.0 .802 80.2
1999 166.6 .785 78.5
2000 172.2 .759 75.9
2001 177.1 .738 73.8
2002 179.9 .727 72.7
2003 184.0 .710 71.0
We have selected arbitrarily 1990 as a base year. We therefore assume that the dollar was worth 100 cents in that year. Column C shows what has happened to the purchasing power of the dollar. It decided quickly, going down to $.96 in 1991. When Bill Clinton took office in 1993 it had gone down to $.93. When he left office after eight years, the dollar was down to 74 cents. Since then it has lost another three cents.
The purchasing power of the dollar is not determined by presidential proclamation. It is determined by the buying and selling activities of all of us, including our governments. For people on fixed incomes between 1990 and 2003, their 2003 incomes were worth only 71% of what they were worth in 1990. If an income earner could get an increased income during that period, he would lose less or might even gain some. Some pension funds adjust their monthly benefits to changes in the purchasing power of the dollar. Sincerely,
Jay V. Groves, Kidder