Inflation Time Machine Worksheet
Economics & U.S. History BLS Data Lab
Inflation Time Machine Worksheet
Bureau of Labor Statistics CPI-U Historical Index
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Background: The Consumer Price Index (CPI) & Purchasing Power
The U.S. Bureau of Labor Statistics (BLS) CPI Inflation Calculator measures monthly price changes for a representative market basket of goods and services. A dollar in 1913 bought far more than a dollar today. By examining historical price indices, economists separate nominal currency from real purchasing power.
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Part 1: Mechanics of Purchasing Power
1. Define purchasing power. How does sustained inflation erode what a single dollar can purchase over decades?
2. The BLS tracks a market basket. Why must items in this basket be updated periodically across historical eras?
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Part 2: Historical Eras & The $100 Benchmark
The table below shows what amount of money in different eras had the same purchasing power as $100 in January 1913 (CPI baseline year).
| Year & Month | Historical Context / Economic Era | CPI Index | Value of 1913 $100 | Observed Pattern |
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| Jan 1913 | Pre-WWI Baseline Economy | 9.8 | $100.00 | Baseline |
| Jan 1920 | Post-WWI Commodity & Goods Spike | 19.3 | $196.94 | Rapid Surge (+97%) |
| Jan 1933 | Great Depression Depth (Trough) | 12.9 | $131.63 | Deflation (-33% from '20) |
| Jan 1947 | Post-WWII Removal of Price Controls | 21.5 | $219.39 | Post-War Rebound |
| Jan 1981 | The 1970s "Great Inflation" / Oil Shocks | 87.0 | $887.76 | Stagflation Crisis |
| Jan 2000 | "Great Moderation" / Tech Boom | 168.8 | $1,722.45 | Steady Growth (~2.5%/yr) |
| Jan 2026 | Modern Baseline (Post-Pandemic Shift) | 318.5 | $3,250.00 | Long-Run Expansion |
3. Depression Deflation: Between 1920 and 1933, the dollar cost fell from $196.94 to $131.63. Why is severe deflation a warning sign of economic collapse rather than a good thing for households?
4. The 1970s Surge: What specific historical shocks (e.g., OPEC oil embargoes, geopolitical crises, loose monetary policy) contributed to the CPI quadrupling between 1968 and 1981?
U.S. Bureau of Labor Statistics (BLS) Consumer Price Index Classroom Lab Page 1 of 2
Inflation Time Machine Worksheet
Historical Case Studies, Real vs. Nominal Values & Policy Analysis
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Part 3: Historical Case Studies & Real vs. Nominal Values
Case Study A: The 1968 Minimum Wage Peak Nominal: $1.60/hr
In 1968, the federal minimum wage was set at $1.60 per hour. When adjusted using the BLS CPI calculator, that $1.60 commanded purchasing power equivalent to roughly $14.50 to $15.00 per hour today.
5. Distinguish between nominal wage and real wage. Why might a contemporary worker earning $10.00/hr have lower real purchasing power than a 1968 worker at $1.60/hr?
Case Study B: Demand-Pull vs. Cost-Push Inflation 1946–48 vs. 2021–23
In 1946–1947, post-WWII consumer demand collided with factory reconversion, causing inflation over 14%. In 2021–2022, pandemic stimulus collided with global shipping gridlocks and energy shocks.
6. How do supply chain bottlenecks and energy price spikes generate cost-push inflation across diverse components of the CPI basket?
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Part 4: Synthesis & Real-World Policy Applications
7. COLA Adjustments: Why are programs like Social Security benefits and tax brackets indexed to the CPI? What would occur to retirees on fixed incomes without this link?
8. Basket Shifts: In 1913, the basket tracked kerosene, wood stoves, and lard; today it tracks smartphones and cloud services. Why does technological progress complicate long-run CPI comparisons?
9. Historical Synthesis:
Central banks target moderate, predictable inflation (~2%) rather than 0% or deflation. Using one historical era from this worksheet, explain why predictability is essential for households and businesses.
U.S. Bureau of Labor Statistics (BLS) Consumer Price Index Classroom Lab Page 2 of 2
