# How do you determine if something is keeping up with the rate of inflation?

Asked by awaytoolong (36) June 25th, 2007

What does it mean to keep up with the rate of inflation? For example, has the Peace Corps readjustment allowance (the amount of money returned volunteers receive to restart life in the United States) kept up with the rate of inflation? Here are the specific numbers:

(per month of service)
\$75 1961 - 3/31/1976
\$125 4/1/1976 - 1/31/1982
\$175 2/1/1982 - 12/31/1987
\$200 1/1/1988 - 12/31/98
\$225 1/1/99 - present

Observing members: 0 Composing members: 0

Short answer: it depends. Essentially, based on your numbers, the Peace Corps readjustment allowance has gone up 300% (or 3 times). The inlfation calculator at inflationdata.com says that since 1961 prices have inflated over 500%. So by that measure, the Peace corps has not kept up. However, if you calculate inflation from 1976 (the last time the Peace Corps gave \$75), then the rate has only been about 260%. This all means that the you are getting more money today in "real dollars" than if you were coming out in March of 1976 but less than if you were coming out in Jan of 1961.

Michael (2685)

Michael has the right basic strategy - compare the percentage growth in prices to the inflation rate. But, the trick is to decide on the relevant price index. When we casually reference inflation as you did in your question, we're referring to the consumer price index that's calculated by the Bureau of Labor Statistics. Their website ( http://www.bls.gov/cpi/cpifaq.htm#Question_7 ) says that the index reflects a variety of prices, including food, housing, clothing transportation, etc.

My point: your question has an underlying premise that there is a single rate of inflation to which the peace corps compensation can be compared. But typically, the goal of such an exercise is to see whether the purchasing power of a typical peace corps worker has stayed constant. To answer that, we'd need a price index that reflects the prices of the goods consumed by a typical peace corps worker, which may or may not be equivalent to the goods in the consumer price index. What do peace corps workers spend this stipend on?

rosedog (225)

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