June 17, 2008


Does the Government Understate Inflation? (Kurt Brouwer, June 17th, 2008, Fundmastery)

In November, 1983, I bought a 1984 Mercedes 300 CD and paid about $33,000 for it. I kept that car for 19 years and bought essentially the same make and model (2003 Mercedes C 320) in December 2002. The new car is significantly better than the 1984 model because it gets better mileage, has more interior room, is much safer (air bags, traction control). Had car prices kept up with inflation over that time period, the 2003 model should have cost around $58,000. In addition, it should have been even higher in price due to the higher quality — it is a much better car.

Yet, I paid $39,500 or so for the 2003 model, an increase of 20% or roughly 1% a year. And, even at that, how should I measure the quality improvements, most of which were unavailable at any price in 1983? So, what was my personal inflation experience with car purchases over the past 20 years?

But, we buy cars infrequently and when we do buy them, we do not really factor in the quality improvements that new cars feature. For example, consider maintenance and reliability. Today, cars routinely go 40,000 miles on a set of tires. In the 1950s, a set of tires lasted 15-20,000 miles. Similar improvements have been made in brakes, engines and other areas. Back then, after 100,000 miles, a car was worn out. Today, a car with 100,000 miles on it has plenty of life left in it.

Posted by Orrin Judd at June 17, 2008 3:50 PM

Do you mean my Maverick whose color was "antiestablishmint"?

Posted by: D Judd at June 17, 2008 5:15 PM

My first car was a pink (really a faded salmon color) 1965 Chrysler with push button transmission. They don't make 'em like they used.

Posted by: Kurt Brouwer at June 17, 2008 8:28 PM

My first car was a 1983 Renault Alliance. Put 130,000 miles on it in 6 years. The clutch made it to 109,000 miles.

It was about $7200, with no A/C. But it ran great (with regular TLC). It was even a nice maroon color. When I bought my next car, they offered me $300 for the Renault.

Posted by: jim hamlen at June 17, 2008 11:47 PM
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