A guide for comparing expenses by year - chart for comparing business expenses and revenues in 1995 with similar amounts in previous years with adjustments for inflation - Brief Article

Nation's Business, Feb, 1996 by James Worsham

The handy chart at right enables you to make approximate comparisons of business expenses and revenues in 1995 with like amounts in previous years, taking into account the effects of inflation.

The central element of the guide is value of a dollar in any year relative to 1995. It shows, for example, that it required $3.93 last year to match the purchasing power of $1 in 1970. You can use the guide to determine, for instance, that; sales of $1.5 million in 1995 actuary were almost $500,000 lower in value than sales of $700,000 in 1975 when inflation is taken into account. (When the 1975 figure of $700,000 is multiplied by 2.83, the result is $1.98 million.)

The guide is derived from the U.S. Bureau of Labor Statistics' monthly Consumer Price Index, the most widely used indicator of inflation. Martin Lefkowitz, an economist at the U.S. Chamber of Commerce, in Washington, D.C., cautions, however, that because the method used to calculate the CPI is out of date, it doesn't truly reflect consumers' buying patterns, decreased prices for some goods and services, and increased value for the price paid for some items. Some economists believe the CPI overstates inflation by as much as 1.5 percentage points.

Nonetheless, the CPI continues to have an effect on the incomes of almost 70 million people who receive Social Security payments, food stamps, federal civilian and military retirement pay, and private paychecks linked to union wage agreements. When the CPI goes up, these payments increase in lock step. Consequently, subtracting 1 percentage point from the previous year's CPI, as many economists and some in Congress are suggesting, would eliminate the need for restraining $150 billion in other projected government spending over five years.