Inflation in Postage Stamps: Knowing the Formula

The price of a first class postage stamp has in the past gone up a penny or two at a time.  The current increase, just started, was a five cent jump:  from 50 to 55 cents per stamp.  Ouch!  I scratched my head and asked myself, "Wasn't the price a nickel when I was a kid?"  Looking at the History of United States postage rates on Wikipedia, I could see that in 1963 the price was indeed five cents.  I threw the numbers into a hand held calculator and failed to find the aggregate inflation rate.  You cannot just stuff these numbers into hand held a calculator, you have to use the precise formula.  You begin by writing out the compound interest formula and then solving it for the interest rate. As money in a bank increases with compound interest, so the value of money shrinks with the compound inflation.  Here is the formula for compound interest.

Interest in a bank or certificate of deposit compounds monthly, which is why the variable "n" is in the formula.  We will use an aggregate yearly inflation rate, so n = 1 in the equation above.  We have
A = P ( 1 + r ) **t
We started out in 1963 with P = $ 0.05.  We ended up in 2019 with A = $ 0.55.  From 1963 to 2019 is t = 56.   We solve this equation for "r" using algebra.
1 + r = 10.0 ** (log10(A/P) / t)

As I mentioned in an early post,  Calculating Inflation with a Practical Example, August 19, 2018, you can solve this with the Python IDLE GUI, but you have to import the math library first.  Then to find the inflation rate, "r", we subtract 1 and multiply by 100 to get it into percentage.  Division gives us  ($ 0.55 / $ 0.05) = 11.0.  Plugging the numbers into the formula in Python gives
>>> import math
>>> 10.0 ** (math.log10(11.0) /56.0)
1.043749542065121
>>> ( 1.043749542065121 - 1.0) * 100
4.374954206512105
>>>
This means the aggregate inflation rate for postage stamps has been 4.375% from 1963 to 2019, and the cost of postage went up eleven fold.  Back in my August post I calculated that science fiction books went up at rate of 4.22% over this time span for a ten fold increase in the price of paper-back books.  We again that 4% inflation over 50 years drives up costs by a factor of 10.  That is horrible for our children and grand children.  We have been experiencing 4% inflation over our lifetime, with spikes that  have been very high, like in the 1980's under Jimmy Carter.

The Fed Lies to Us

The Federal Reserve has been telling us that contemporary inflation has been about 1% and they wanted to raise it to 2%, but the Fed lying to us because it excludes food and energy prices from the number they quote to us.  From this article:  The U.S. Lies About Inflation, we have these statements:

• The government-issued consumer price index (CPI) is showing that "core inflation" – which includes prices for all items except food and energy – was up only 1% from last year.
   
• By excluding food and energy prices, as volatile as they may be, the CPI fails to convey the pain that rising prices are inflicting on American households. Indeed, the true rate of inflation could be closer to 12%.
   
• The CPI is a joke. Every American knows that in reality inflation is far higher than the CPI tells us based on what they feel in their wallets every day.
   
• Our research suggests inflation is really running between 9% and 12%, which is more commensurate with what we all feel in our wallets every day.

From this article, Adler: "The Fed's Been Lying About Inflation; It's Frighteningly High", May 18, 2018, we have this statement:  "... the fact is that we really have more – much more – inflation than they’re telling us."

What Should We Do?

We should talk to each other about inflation.  We should talk to our congressmen about inflation.  We need to get inflation and the national debt under control, otherwise we will ruin the lives of our children and grand children.

Robert

Are You in the Top 1 Percent?

I saw progressives on TV this week railing against "the 1%."  What does that mean?  The top 1% percentile for income is $434,454.80.  There are entire neighborhoods in Plano that fit into that category, but the median household income in Plano is $79,234. I would say many of the people of Plano fall into the 50 to 99th percentiles of income.  Here is a chart of income distribution.  Click on it to see it enlarged.

The graph is United States Household Income Brackets and Percentiles in 2018, Feb. 16, 2018, from the Don’t Quit Your Day Job (DQYDB) blog.  It is a great web page, I recommend looking it over.

How can we know there are people with this income in Plano?  The recommended price for a house is 2 to 2.5 times your gross yearly income.    2 times and 2.5 times the 1% cutoff income is
$434,454 * 2.0 =  $ 868,908
$434,454 * 2.5 = $1,086,135
The most expensive house in Plano at this time is $6,399,000.  The lower end of the top 10 homes in Plano is $2,375,000.  This indicates there are people in Plano with incomes exceeding the cutoff for the 1%.

Who are the 1%?  They are our neighbors.  There is a wide distribution of financial success in Plano.  I see no reason to resent some of our neighbors being more financially successful.  I find contemporary politics disturbingly divisive.  I think the children of Plano should get the education that enables them to pursue a spot in the top 1% of  income if that is what they desire.  There is nothing wrong with working hard and succeeding.

Robert