As a part of its statutory responsibility for price stability, the Reserve Bank of New Zealand has provided a web based ‘Inflation Calculator’. Historians will find it useful to convert an earlier price into a current one, thus giving readers a better sense of the significance of a historical value.
The site is well documented, and there is no difficulty using the simple procedures. Entering 200 in the top left box, setting the right boxes to 1919 in quarter 1, and setting the next line of right boxes to 2003 in quarter 3, will show that £200.00 in early 1919 would purchase the same as $15,255.88 in 2003.
The following remarks are designed to elaborates some points of particular importance to historians.
A Consumer Price Index is based on the valuation of a standard ‘basket’ of goods and service, the items in the basket reflecting the purchases of a typical average consumer. If the basket costs, say, $100 in one year and $200 a decade later then prices are said to double.
In practice the CPI basket gets changes over the years. Year on year changes do not much matter, but over the long run there will be considerable changes to the composition of and weights in the basket. The current one includes the family computer. The 1919 one may have included an abacus. Thus there is a bit of convention in the comparison, but the calculation gives a sense of historical values in current terms.
However, the calculator does not tell you the price of a particular product in today’s terms. That your grandparent’s land cost £200.00 in early 1919, does not mean the land cost $15,255.88 at the end of 2003. What the calculator tells you is that the £200.00 in 1919 would purchase a basket of goods and services which would have cost $15,255.88 in 2003. (Land is not even in the basket: it is not a consumer item.)
The calculator may also be misleading in regard to incomes. Suppose your grandfather earned £3-17s-0d a week, or £200.00 a year. The calculator shows the £200.00 was the equivalent of $15,255.88 ($293.38 a week) at the end of 2003, which is a low rate of remuneration in today’s terms. The calculation tells us what the wage would buy. But what you really want to know is that £3-17s-0d a week, was a little above the average manufacturing male wage for those days (see New Zealand Official Year-Book 1920, p.372). In the long run, earnings rise faster than prices, because of rising productivity. (Alas, there is no ‘earnings calculator’.)
The inflation calculator only goes back to 1919, as far as the quarterly data allows. Tabulated below is a simple, but not as robust, calculator going back to 1862. The tables give the value of a pound in a pre-1919 year in March quarter 1919 consumer prices (second column) and September quarter consumer prices (third column). It can be used in conjunction with the Reserve Bank Inflation Calculator by putting the second column figure into the RBNZ inflation calculator. for 1919.1. If the requested time is 2003.3 (the default setting) the answer should be the the third column figure.
What a Pound Could Purchase: 1862-1918
|Value in 1919.1 pounds||Value in 2003.3 dollars|
The table is based upon Margaret Galt’s consumer prices series published in
M.A. Arnold, Consumer Prices, 1870-1919, Discussion Paper No 12, Wellington: Department of Economics, Victoria University of Wellington, May 1982,
and subsequently updated in
M.A. Arnold, A Long Run Consumer Price Index for New Zealand for March Years 1862-1983, publication in possession of Brian Easton.
The published series is for March Years. December Years have been interpolated.