Economy

The Cost of Living

~3¢on the 1913 dollar

What a dollar from 1913 buys today, after a century of inflation (BLS CPI-U).

A 1913 dollar buys about three cents’ worth today — and the squeeze since 2020 is the latest chapter, not the whole story. The federal government has tracked consumer prices since 1913, and over that century the dollar lost the overwhelming majority of its purchasing power: through the post-WWI swings, the 1970s stagflation, the long calm of the 1990s–2010s, and the sharp pandemic-era spike. This is what inflation measures, how today’s prices compare across a century, why they rose, how much wages recovered, and why ‘the economy is fine’ and ‘I can’t afford anything’ can both be true at once.

Purchasing power of a 1913 dollar

~3¢

CPI-U, 1913 vs May 2026 (BLS)

CPI rise since Jan 2020

+30%

Jan 2020 → May 2026 (BLS)

Peak inflation · 1980 vs 2022

14.8/9.1%

monthly peaks: Mar ’80, Jun ’22

Median home price vs 2019

+58%

NAR median existing-home → May ’26

Renters cost-burdened

50%

record 22.6M households, 2023 (JCHS)

What "inflation" actually is

Inflation is the rate at which the general price level rises — not the price of any one thing, but a weighted average of nearly everything a household buys. The federal government has measured it since 1913 with the Consumer Price Index, which tracks the cost of a fixed "basket" of goods and services and compares it month to month. When the index rises 3% over a year, the same basket costs 3% more.

Two distinctions matter for reading the news. The first is which gauge — CPI or PCE. The second is which slice — the headline number that includes everything, or "core," which strips out volatile food and energy to show the underlying trend.

CPI-U (Consumer Price Index)

Published monthly by BLS. Measures the out-of-pocket cost of a fixed basket bought by urban consumers. It is the number in the headlines, the basis for Social Security COLAs and TIPS, and tends to run a few tenths higher than PCE because its weights update less often.

PCE (Personal Consumption Expenditures)

Published monthly by the BEA. Broader than CPI — it includes spending made on your behalf (employer health premiums, Medicare) and re-weights the basket as people substitute. The Federal Reserve’s official 2% target is PCE, not CPI.

Core vs headline

Headline includes everything. "Core" strips out food and energy, the two most volatile components, to reveal the underlying trend. The Fed watches core because a one-month gas-price swing tells you little about where inflation is heading.

How it’s built

BLS field staff and web-scrapers collect ~80,000 prices a month across thousands of items and outlets. Each item is weighted by how much households actually spend on it, then the weighted basket is compared month-over-month and indexed to 1982–84 = 100.

What’s in the basket — CPI relative importance

Each major group is weighted by how much households actually spend on it. Shelter dominates — which is why housing costs drive the headline number for months after goods prices settle. Approximate CPI-U weights, BLS (2024).

Housing & shelter

36%

Transportation

16%

Food & beverages

14%

Medical care

Education & communication

Recreation

Apparel

Other

12%

Housing & shelterRent, owners’ equivalent rent, utilities. The single largest and slowest-moving piece.

TransportationNew & used vehicles, gasoline, insurance, repairs, airfares.

Food & beveragesGroceries (food at home) plus restaurant meals (food away).

Medical careHealth insurance, prescription drugs, doctor and hospital services.

Education & communicationTuition, phone & internet service, computers.

RecreationStreaming, tickets, sporting goods, pets.

ApparelClothing and footwear — a shrinking share of spending.

OtherPersonal care, tobacco, financial services, and more.