This thought came to me as I was food shopping. So I know there are things that increase the price of certain items (beer, cigarettes, sugar tax – UK) but they also increase with inflation each year like other foods such as bread.
Apparently, the average inflation raise over the last 10 years in the US is 2.37% as of July 2023. So if it is the same in another 10-years, over the space of 20 years inflation would be 4.74%, if we say inflation is the same? And so on and so on. If it continues wouldn’t prices, for say, bread just end up getting higher and higher and be like $10-15+? And as wages don’t rise with inflation the same way foods do fewer and fewer people each decade could afford it?
Now this is just random thoughts I had when shopping and I am not making any comments on any politics. All I wanted to know is, is my thinking true that prices will just go up and up indefinitely decade-on-decade, why or why not? And I am an idiot so imagine I am 5.
​
Edit: Went to sleep and woke up to about 300 notifications, thanks for your explanation to a Neanderthal like myself.
​
In: 4366
What’s relevant is PPP: Price Purchasing Parity, or “how much can you buy with your salary.”
And that is affected by if prices are going up faster or slower than wages.
For example, if your salary was $10,000/year and bread was $1/loaf–are you better off or worse off when bread goes up to $6/loaf but your salary goes up to $100,000/year?
—-
This is why, for long-term estimation purposes, economists sometimes talk about “how many hours does it take to earn enough to buy a loaf of bread.”
Now [take this discussion about purchasing power through history.](https://www.victorianweb.org/history/work/nelson1.html) For a carpenter (considered a ‘skilled laborer’) in 1450, for example, the table suggests he can buy 34.41 pounds of bread per day.
A loaf of bread weighs 2 pounds. Assume he worked 12 hour days–typical for that era–this means it takes him about 40 minutes to earn enough to buy a loaf of bread.
Today, consider a loaf of bread costing $5. [The average salary in the US is $53,490/year](https://www.jobted.com/salary); assume after taxes that person is taking home $20/hour. (Or around $40,000/year, divided by 2,000 hours per year. I’m spitballing here, bare with me.)
This means *today* the average salaried person can earn enough to buy a loaf of bread in 15 minutes.
So while bread is far more expensive (in terms of price) today than it was back in 1450, in fact, you can buy more loaves of bread today than you could back in the 1450’s.
Latest Answers