Between Three and Four Percent

One way to measure inflation

In 1983 I bought a new little car for $5000. In 2007 I bought a new little car for $12,000. That's 240% of the 1983 price, an increase of 140% in 25 years. I worked it out in Excel: With compounding, it's a 3.715% annual rate of increase.

That reminded me of something Milton Friedman said in Money Mischief:

As Forrest Capie points out in a fascinating paper, it took a century for the inflation in Rome, which contributed to the decline and fall of the empire, to raise the price level "from a base of 100 in 200 AD to 5000... -- in other words a rate of between 3 and 4 percent per annum compounded."

Fall of Rome.