The Affordability of Food
- Posted by TheArmoTrader
- on March 4th, 2013
“Back in my day, a can of Coca-Cola cost a nickel” (there’s a reason for that). We hear lots of complaints similar to this. Good & services were much much cheaper a century ago. However, does this mean they were more affordable? Its true that the nominal price of a good was much cheaper, but could people afford it?
The BLS had an interesting little post out last week, showing prices of selected food items. They compared the price from 1913 (100 years ago) to today. Of course, most food items had seen their prices increase at least 5-fold (with the highest being a 39-fold increase!). But, does this mean these food items have gotten less affordable? Before I answer that question, let’s ponder a very important chart.
Food expenditures as a percent of income
As you see, the trend (for Total food) since 1960 has been down. Even if you go further back (to 1929), the trend is still down.
Here’s the graphic the BLS posted on their site showing the price increases in selected food items.
Now, lets take a look at the real affordability of these items, as a percent of the average wage.The average wage today is $19.97/hour. In 1913 (according to multiple sources), the average wage was around $0.21/hour (or $750/year). Below is a chart of the above food items, as a percent of the average wage in 1913 (in blue) and 2013 (in orange). As you can see, all items are more affordable now than they were in 1913 (and most items to a major degree).
Below is the percentage breakdown for each item for those more interested in the hard numbers. In 1913, to purchase all the items on the list you would need to earn about $3.20 (or 1,500% of your wage), which would take about 15 hours of labor. Today, you would only need to work a little less than 2.5 hours. That is a 12.5 hour difference.
In conclusion, while prices of non-durable goods have been rising for the past century, the affordability of these goods has
fallen collapsed. Now, does this trend happen every decade? No. I haven’t done the research, but I’m sure this there were decades (1970s, 2000s) in which affordability dropped. However, if history is any guidepost, then this trend of increased affordability (or standard of living) will continue over the long run.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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