Methodology




Measuring Value Over Time

Measuring relative value over time is not as simple as you may think. The value of a dollar has changed over time due to inflation. To complicate matters, there are various different measures one can use. For example, one can look at the purchasing power of the dollar. Or one can look at the amount of labour needed to earn that dollar.

For example, a US dollar from 1962 adjusted for inflation (nominal amount * Change in Consumer Price Index) was worth $7.70 in 2013. But if we look at the relative amount of hours one would have to work, that dollar is worth $8.43 for an unskilled worker, or $10.30 for a skilled worker. It is worth $16.20 if we use relative average income.

The complexities go even further and you can find out more at an excellent website called Measuring Worth.

For our purposes we will look only at purchasing power relative to the Consumer Price Index. And we will consider the prices of competing goods today. Because our prices are in Canadian dollars, we will be using the Canadian CPI to determine what a 1962 dollar is worth today.

The difference between the overall inflation rate between the US and Canada is very small. So if you want to do a quick approximate calculation here is a handy calculator that can convert a US dollar from any year into its buying power today. As an example of the difference between the two – a Canadian dollar from 1962 was worth CDN$7.96 in 2015 while an American dollar was worth US$7.82, a difference of fourteen cents relatively speaking.

Those differences indicate that Canada has had a slightly higher inflation rate than the USA over that entire 53 year period. But if you check year to year stats (see the CPI page) you’ll see the rates fluctuate and there are some years in which Canadian inflation was lower than US inflation, from 2004-2008 and from 2011-2014 for example. The lowest rates for both countries occurred in 2009 hen Canada’s inflation rate was just 0.30 percent and the United States actually had deflation with a rate of -0.40 percent. It is the only negative annual inflation rate for either country for the years charted, though Japan has had deflation many times in the last twenty years.