In 1937   a PurchaseFood, Clothing, TV, Car, Movie Ticket, Vacation, Gasoline ... of $100000   has a "real price" of $2,183,481.89 today as measured by inflating the amount by the Consumer Price Index (CPI) The CPI is most often used to make comparisons partly because it is the series with which people are most familiar. This series tries to compare the cost of things the average household buys such as food, housing, transportation, medical services, etc. For earlier years, it is the most useful series for comparing the cost of consumer goods and services. It can be interpreted as how much money you would need today to buy an item in the year in question if its price had changed the same percentage as the average price change. .
Alternatively, the above Purchase has a "relative value" of $4,870,961.28 today as inflated by the Value of the Consumer Bundle The Consumer Bundle is the average dollar value of the annual expenditures of a "consumer unit." The consumer unit could be a family or another type of household. The main point is that spending is a joint decision of the members of the unit. During the 20th century, this measure grew faster than per capita income because the average size of the consumer unit decreased during that time. The bundle increases over time as household income increases. Unlike the CPI, not only the cost, but also the amount of goods and services increases over time. .


For discussion, these two measures are defined as Real Price and Relative Valuein Consumption.

Real Price is measured as the relative cost of a (fixed over time) bundle of goods and services such as food, shelter, clothing, etc., that an average household would buy. In theory the size of this bundle does not change over time, but in practice, adjustments are made to its composition. This measure uses the Consumer Price Index (CPI).

Relative Value in Consumption is measured in proportion to the amount of goods and services such as food, shelter, clothing, etc., that an average household would buy. Historically, this bundle has become larger as households have bought more over time. This measure uses the Value of the Consumer Bundle, which is only available after 1900.


PAST PURCHASES IN TODAY'S TERMS

Snickers Bar

Which is cheaper, a 25¢ Snickers bar in 1978, or an 89¢ Snickers bar today? (25¢ in 1978 has a relative value of $1.04 today. Today’s Snickers are cheaper.)

Snickers Bar

Snickers Bar


Snickers Bar

Which is cheaper, a 25¢ Snickers bar in 1978, or an 89¢ Snickers bar today? (25¢ in 1978 has a relative value of $1.04 today. Today’s Snickers are cheaper.)

Snickers Bar

Snickers Bar