Why prices remain high even when inflation subsides
Personal finance reporter Daniel de Visse explains why cooling inflation still means higher prices, and why cumulative inflation continues to drive up costs.
- Accounting for inflation, Americans’ general purchasing power increased by 73.1% between 1974 and 2024.
- While many consumer goods became cheaper, housing, health care, and college tuition costs rose significantly.
- Over the past 50 years, the median home price has nearly doubled in inflation-adjusted dollars.
Are Americans wealthier than they were 50 years ago? The answer can be complicated depending on where you are in your life experience.
In some ways, the answer is undoubtedly yes, according to a report by ConsumerAffairs, a consumer news company based in Tulsa, Oklahoma. Looking at purchasing power, which measures income against inflation, the report found that general purchasing power increased by 73.1% between 1974 and 2024. Average personal income, adjusted for inflation to 2024 figures, will increase from the equivalent of $28,278 in 1974 to $48,960 by 2024.
But that’s only part of the story. The prices of many consumer goods have actually fallen over the past 50 years, and the ubiquity of technological change – central air conditioning, life-saving medicines, cars that last much longer, smartphones that put the world’s information in your pocket that saves you money and time – has quickly become taken for granted, especially by young people who can’t remember a world without smartphones.
Not all costs have been reduced. According to ConsumerAffairs, many previously unincurred costs cannot be postponed to a more convenient time, such as housing costs, medical bills, and college tuition.
Using inflation-adjusted 2024 dollars, tuition at a four-year public university rose from the equivalent of $3,270 per year in 1974 to $9,872 in 2024. For private universities, it rose from $13,010 to $35,911. The overall effect was that the university’s purchasing power shrank by 42.7% during this period.
According to ConsumerAffairs, there are multiple factors behind this, including cuts in state funding for colleges, expensive amenities that colleges themselves have added to attract students, and the expansion of federal student loans, which makes it easier for students to find the money to pay for college at the time, but doesn’t necessarily mean they can repay the loans in subsequent years.
Over the past 50 years, medical purchasing power has shrunk by 17.2%, and individuals’ annual out-of-pocket medical expenses have increased from $972 in inflation-adjusted dollars in 1974 to $1,632 in 2024, according to the report. According to Macro Trends, average life expectancy in the United States at that time increased from 71.79 years to 79.25 years.
Buying a house also costs money. Using inflation-adjusted dollars, the median home value that would have been worth $229,342 in 1974 is now $418,975. Monthly rents haven’t increased as much, but they have risen from the equivalent of $910 in 1974 to $1,487 in 2024.
“Are we better off? If you ask a retiree who pays a salary and owns a home, the answer is probably yes. If you ask someone who is splitting their rent between three parties a few years out of college, the answer is probably no,” the report concludes. “Purchasing power has increased. Many people still feel left behind. Both of these things are true at the same time.”
