Editor's Page: Fun with Inflation

Prices get bigger, dollars get smaller, but we want just as much.

Photo: Linny Morris

When I was in high school, if I splurged on a $20 or $30 dress shirt from Runway 7 in Pearlridge for the purpose of looking New Wavishly cool at Pink Cadillac, my dad would frown. If I remember correctly, he’d say something about good shirts costing $5. I’m not sure, now, if his objection was that I was spending too much on fashion or that stores were charging too much for shirts.

The irony—if not the ironing—is that my dad and I probably spent the same amount on shirts. His teenage years spanned the late 1930s and early 1940s. Five bucks in 1940 had the same buying power as $39 in 1986. Neither of us really took this into account back then.


I’ve become fascinated by the effect of inflation on the price of everyday things, how some things become easier to buy, other things more difficult. My staff would probably tell you that I’m a bit obsessive about providing adjusted dollar figures for any historic price we might mention. It’s easy to do. The Federal Reserve Bank of Minneapolis has a great calculator at www.minneapolisfed.org.

Yet, none of this awareness prepared me for what the calculator just revealed. I’m glad I was sitting down—the value of the dollar has dropped by half since I first started earning my own money. Here is how the Minneapolis calculator expresses it:

“If in 1986, I bought goods or services for $1, then in 2009, the same goods or services would cost $1.99.”

This explains a lot. Like, why trips to the ATM seem so frequent, and why it’s now socially acceptable for the ATM to give me $50 bills. I panicked the first time that happened, thinking, “A fifty!? I can’t use this! No one will have change!”

Well, $50 is the new $20, just about.

What does this have to do with the price of housing in Honolulu? Plenty. Our cover story this month takes a snapshot of the current real estate market, and tracks the sales history of five homes from representative neighbors. One of them, a four-bedroom home in Manoa, sold for $18,750 in 1943. It’s on the market now for nearly $1.5 million.

Unlike the shirts my dad and I were buying, in this case, prices really have shot up. Adjusted for inflation, the sale price of this Manoa home would be $230,000—one-sixth of what it’s actually going for. It’s the same story in west Oahu. A six-bedroom house in Ewa sold in 1948 for almost $8,000, less than half the Manoa home. It’s now listed at $675,000, though its original sale price, in today’s dollars, would be $69,514.

Housing in this town hasn’t only outrun inflation. It has outrun our salaries. Hawaii’s average annual wage in 1969 was $6,876. In 2006, it was $37,784.

Adjusted for inflation, both of those annual wages have the buying power of about $40,900 today, a wage that just barely qualifies for a $200,000 home loan.

Which would be enough to buy a new, four-bedroom home on Oahu, provided the mortgage also covered a time machine. I bet everyone reading our real estate feature will wish they had one of those. I do. I’d like to go back in time and buy my dad a $5 shirt.