The American dollar is rightly classified as one of the most stable and reliable world currencies. The history of this monetary unit consists of many facts and events that predetermined this state of affairs. For example, until the very beginning of World War II, prices for goods and services in the United States of America were remarkably stable. Exceptions include periods of hyperinflation, which were caused by huge financial investments during the Revolutionary War in 1775-1783 and expenses during the Civil War of 1861-1865.

In addition, the American financial system has been subject to several periods of deflation, or negative dollar inflation. Such periods include the economic crises of the 40s and 70s of the nineteenth century, as well as the Great Depression.

Inflation in the United States after the end of World War II

In the next forty years after the end of World War II, a permanent increase in the price index was recorded in America. Inflation of the dollar exchange rate reached a particularly rapid rate in the period from 1973 to the early 1980s. Experts call the main reason for the rise in prices in this period of time the introduction of restrictions by OPEC on oil supplies to the United States.

In addition, other factors of dollar inflation were:

• ending the practice of exchanging American currency for gold at the established rate;
• devaluation by almost 8%;
• transition to the use of floating exchange rates of other monetary units.

Consumer Price Index in the United States of America

The consumer price index is one of the main and most objective indicators that characterize the level of dollar inflation in the United States. Since 1919, the Consumer Price Index data has been published every month by the Bureau of Labor Statistics of the United States Department of Labor. To determine this indicator, a method is used to measure changes in the cost of certain goods and services in densely populated regions of the country. This takes into account the total income of consumers and the part of this income spent on purchases.

It should be noted that the published consumer price index primarily indicates the cost of living in a particular region of the United States. At the same time, statistical data for each month are traditionally the benchmark that serves to determine the level of dollar inflation in the country. It is worth noting that during the use of the consumer price index, the methodology for determining it has changed several times.

This took into account existing financial and economic conditions, as well as other factors. For example, during the years of armed conflict, the level of consumption of products of a certain category decreased. Also, the methods for calculating the price index were influenced by current census information, as well as by the transformation of consumption conditions.

Absolute change in the cost of goods and services

It would be appropriate in this material to give examples of absolute changes in the cost of goods and services. But first it should be noted that, according to statistical data, from 1957 to 2007. The consumer price index in America has increased more than sevenfold. At the same time, it should be taken into account that for some goods or services this figure may be even higher or, on the contrary, lower. Analysis of available data makes it possible to estimate the level of dollar inflation by year.

Thus, in the 50s of the last century, the cost of a postage stamp in the United States was 3 cents, and in 2007 - 41 cents. Thus, the price for this product increased almost 13.7 times. Another example. The Big Mac hamburger of the McDonald's restaurant chain first went on sale in 1962 and then cost 45 cents. At the moment, the price of this sandwich is $3.22. Thus, the hamburger has increased in price by 7.1 times, which is comparable to official statistics on the growth of the consumer price index for the specified period.

One more example. At the time of the launch of the Motel 6 hotel chain in Santa Barbara (California) in 1962, the cost of a simple room was 6 US dollars. By the way, this fact was emphasized in the names of the motels. At the moment, the daily rental price for similar apartments is $110. Thus, the cost of a room has increased 18.3 times over half a century.

State guarantees

In conclusion, it is necessary to emphasize one important detail. In America, along with the inflation of the US dollar and the growth of the consumer price index, the minimum wage guaranteed by law is also increasing. Thus, the minimum wage in 1950 was 75 cents per hour. In 2007, this figure was $5.85 per hour. That is, the legally established minimum wage increased by 7.80 times. In addition, in 2008 this figure was $6.55 per hour, and in 2009 - $7.25 per hour.

US Dollar Inflation Against Gold

Dollar inflation is difficult to estimate because official dollar inflation in the United States can differ significantly from dollar inflation in other countries.

If we take official statistics on inflation in the United States, it does not exceed a few percent per year for many years. But inflation depends on the amount of money printed. As you can see in the chart, money has been printing well lately:

If there is no high inflation in the United States according to official data, then money is printed for other countries and dollar inflation occurs in other countries.

To estimate dollar inflation, we will use gold as a measure of value over many centuries. Let's take the cost of a troy ounce of gold at the end of the year as a basis:

For example, between 1997 and 2001, the price of gold was almost constant:

1997-$ 289,20 1998 - $ 287,45 1999 - $ 290,85 2000 - $ 272,65 2001 - $ 276,50

But since 2002, gold began to rise in price in dollars, i.e. the dollar began to depreciate against gold:

2002 - $ 342,75 2003 - $ 417,25 2004 - $ 435,15 2005 - $ 513,00 2006 - $ 635,70 2007 - $ 836,50

So in 2005, the dollar depreciated against gold by 17,9% , in 2006 - on 23,9% , and in 2007 on 30,6% .

On average over recent years, dollar inflation against gold is 20% per annum. Most likely, a bubble is inflating in gold.

This is what the dollar to gold and euro ratio looks like for 9 years:

If gold at the end of 2008 cost $865, then at the end of 2009 it was $1100, and at the end of 2010 it was $1400 - i.e. US dollar inflation for 2009 in relation to gold was 27% , + US dollar inflation for 2010 another 27%. Roughly, the dollar in relation to gold has lost half its value in just two years.

And if we take the period from the beginning of 2002 (276.5) to the beginning of 2011 (1400), we get a depreciation of the dollar against gold over 9 years by more than 500% .

It means that US$200 early 2002 in terms of gold are equal 1000 dollars Today. Conversely, $1,000 today is $200 in 2002.

US dollar exchange rate USD by year in Russia:

See also:

The American currency is considered much more reliable than the ruble. There are grounds for this thesis, but inflation is characteristic of almost all currencies; in a normally developing modern society there is no escape from it.

Inflation rate in the USA by month and year

The table below contains both historical and recent data (it is automatically updated once a month).

As we can see, in recent years the degree of price increase in America has fluctuated around 3%, and in some periods even deflation has been observed.

Comparison of dollar and ruble inflation

For ease of comparison, we present a table and graph of changes in the level of depreciation of the money supply in the USA and the Russian Federation.

Years	ruble	dollar	Years	dollar	ruble
2012	6.58	2.07	2005	10.91	4.35
2011	6.1	3.53	2004	11.74	3.19
2010	8.78	1.17	2003	11.99	2.04
2009	8.8	-0.18	2002	15.06	2.03
2008	13.28	3.66	2001	18.8	2.13
2007	11.87	3.54	2000	20.1	3.45
2006	9	1.31

It should be noted that the data is purely indicative and has a certain margin of error.

It is hardly worth reminding that Russian and Western ones use different assessment methods. In addition, the consumer basket of the average Russian and the average American differs in its components. Therefore, price increases in the same industries have different effects on the real purchasing power of money.

Main conclusions

• The depreciation of the US currency is relatively stable. In general, the dollar is depreciating much more slowly than the ruble, although the gap has been narrowing in recent years.
• Currency as a way of storing money can be considered a good option in terms of protection against inflation, since its level for “bucks” can be predicted more confidently.

Let us clarify the last point. This is not about a lower rate of depreciation as such, but that its reduction in price is easier to predict and factor into your calculations. In other words, the ruble can depreciate at a rate of 5% per year or at a rate of 20%. By putting your savings in a bank deposit at 10%, you will either win or lose. Moreover, it is quite difficult to predict fluctuations.

By using deposits in foreign currency with a significantly lower rate (5%), you can achieve almost guaranteed protection of savings.

Inflation is a concern for all segments of the country's population, so it is very important to understand its main features. In addition, it is necessary to determine how statistical indicators of inflation differ from reality.

Inflation is, first of all, the depreciation of money, an increase in the price level and a decrease in the purchasing power of the country's citizens. The most important factors that cause inflation include: state budget deficit, commodity shortage, monopoly position of individual manufacturing companies, which allows them to raise prices for their goods and services without really improving their consumer qualities or to produce predominantly expensive products; an unreasonable gap between the growth of labor productivity and the growth of wages, a weak influx of investments into the economy (domestic and external), long periods of investment development.
Inflation indicators
Before moving on to the analysis of inflation in the United States, we should name the main economic indicators (indicators) that characterize it:
— Consumer price index, reflecting the dynamics of the cost of a basket of consumer goods and services. It is determined by measuring the price level of consumer products and services.
— Retail price index - an indicator that measures the average price level in the retail market. Prices for luxury goods are generally not taken into account.
— Cost of living index - reflects changes in the market value of the main elements of consumer spending associated with an increase in retail prices for goods and tariffs for services. It is used to adjust real incomes of the population in conditions of chronic inflation. The range of goods and services taken into account when calculating this indicator is constantly expanding. Typically, when calculating the index, prices for food, clothing, fuel, etc. are taken into account.
All of these indicators are calculated by the Bureau of Labor Statistics and published monthly since 1919. Statistics as of the end of the month in which they are published are the most popular method of measuring inflation in the United States. During its existence, the method for calculating this indicator has changed several times, adapting to current conditions. For example, to the reduction of certain types of products during the war years, to new census data, to changes in consumption habits.
Note that the consumer price index in the period from 1957 to 2007, i.e. over 50 years, increased by more than 7 times, despite the fact that for certain goods and services the price increase was more significant. For clarity, I will give only two examples: a postage stamp in 1950 cost 3 cents, in 2012 - 45 cents (an increase of 15 times).
The Big Mac burger first appeared at McDonald's in 1962 and cost 45 cents; today its price is $3.22 (a 9-fold increase).
In recent years, a certain trend has emerged in the behavior of producers of goods and services. In order not to frighten the consumer, food manufacturers do not increase the price of a specific product, but reduce its quantity in the package or its weight. For example, the number of instant coffee bags in Nescafe packaging has decreased from 10 to 6–8, depending on the type, and the weight of the pizza has decreased.
When analyzing the level of inflation in a country, we must not forget that it is closely related to the level of unemployment, productivity and wages. Unemployment, although slowly, is declining. As of December 7, 2012, its level was 7.7%. Labor productivity in the 3rd quarter of 2012 increased by 2.9%, wages - by 1.9%. The legal hourly wage rose from 75 cents in 1950 to $7.25 in 2009, a nearly 10-fold increase.
Dollar inflation
I would like to draw attention to another important indicator caused by inflation - indexation, an automatic increase or decrease in wages, prices, interest rates, etc. depending on changes in the above indices. If we consider the inflation rate in historical terms from 1914 to 2012, then on average during this period it was at the level of 3.4%. According to a number of economists, the real level of average annual inflation over the past 20 years is 7.5–8.4%. The highest inflation rate was in June 1920 - 23.7%. Before World War II, the price level in the United States was relatively stable, followed by a period of steady growth in the price index. A period of significant inflation lasted from 1973 until the 1980s. This situation was primarily due to the oil embargo by OPEC countries. Rising oil prices caused a sharp rise in inflation. Inflation in the United States rose to 10% in the 1970s. In addition, there was inflation of the US dollar against gold.
Let me remind you that in 1944 the dollar was pegged to gold - $35 per Trojan ounce. In 1971, there was a refusal to exchange the dollar for gold at a fixed rate, the dollar was devalued by almost 8% and the transition to floating exchange rates began. From that moment on, dollars began to be printed in large quantities. For example, in 2005 there were 760 billion dollars in circulation, most of it outside the United States. Three years later, in 2008, there were already 875.3 billion dollars in circulation.
But the issue of the dollar is only part of the problem, the other part is the US national debt, which is growing steadily: 2005 - $8 trillion, 2010 - $10 trillion, 2012 - $16.1 trillion.
In recent years, dollar inflation has begun to increase around the world. To estimate dollar inflation, it is common to use gold as a measure of value over many centuries. The basis is the cost of a Trojan ounce at the end of the year. For example, for the period from 1997 to 2001, the price of gold was almost constant: 1997 - $289, 2001 - $276.5. But since 2002, gold began to rise in price significantly, i.e. The dollar began to depreciate in relation to gold: 2002 - $343, 2007 - $837, 2010 - $1,400, 2012 - $1,700. On average, over recent years, dollar inflation against gold has been 20% per annum.
Pumping the US economy with dollars in huge quantities to stimulate its recovery and further development contributes to the growth of inflation, i.e. The purchasing power of the dollar is declining and will continue to decline in the future. Quantitative easing involves the Federal Reserve purchasing US debt. In exchange for securities purchased on the market, a liquid mass is formed, which is mobilized using the printing press. Under such conditions, the ratio of money supply to GDP increases. And this puts pressure on the national currency. Raw materials, steel, and basic non-ferrous metals are becoming more expensive, while the dollar is depreciating.
In addition, if official data shows that the US does not have high inflation, then dollars are being printed for other countries, and dollar inflation is happening in other countries. The famous American economist Milton Friedman argues that inflation is a symptom of monetary policy. He believes that it would not be a surprise to see inflation of 10-15% within the next 5 years: “I want to remind everyone that inflation involves a decrease in the value (purchasing power) of the dollar, not an increase in prices. Prices rise in production, in transport, in the form of taxes on income, on sales, on raw materials... The cost of goods and services tends to constantly increase. This is what we call inflation. If you decide to save, for example, for retirement, to buy a house, to pay for your children’s education, you must remember that their value in the future will be greater than today.” Every family needs to engage in financial planning - for the year and for the future, always taking into account the inflation trends that are observed in the country and in the world. I wish you success.