The Effects of INFLATION

Buyers should be aware that coin and note sellers who make statements such as - 'this coin has shown a compound growth rate of 25 percent per year since 1980' purposely do not take inflation, and the consequent fall in the dollar's buying power, into consideration. Another often used trick to boost perceived performance is to make the calculation from a low valuation base year, for example, when the market was depressed.

The table and graph below show the decline in the purchasing power of one Australian dollar since 1970. While changes in valuations in the past are not always a guide to the future, an understanding of how a particular item has performed in relation to inflation (as measured by the Consumer Price Index -CPI) can assist in making a purchase decision.

To re-calculate a past valuation in today's dollars, simply multiply it by the number for the corresponding year. By comparing the result to the current valuation, you can work out if the item has increased or decreased in value, in real terms.

 

Purchasing Power of $A1
1970	6.98		1980	2.60		1990	1.19
1971	6.61		1981	2.37		1991	1.15
1972	6.24		1982	2.13		1992	1.14
1973	5.69		1983	1.94		1993	1.12
1974	4.94		1984	1.86		1994	1.10
1975	4.30		1985	1.75		1995	1.05
1976	3.78		1986	1.60		1996	1.03
1977	3.37		1987	1.47		1997	1.02
1978	3.12		1988	1.37		1998	1.01
1979	2.86		1989	1.28		1999	1.00

For example:
The valuation for a 1923 halfpenny in Very Fine condition in 1980 was $575. In 1999, the same coin is worth $1,600. Is it a good buy? Let's see.

Multiply $575 by 2.60 (from the 1980 entry in the table above). The result - $1,495 - is less than the current valuation of $1,600. The answer (assuming the coin continues to increase in value at the same rate) is - yes it is a good buy - the 1923 halfpenny appears to be an inflation beater.

Source:
The above figures are derived from the Weighted Average 8 Capital Cities Annual Consumer Price Index published by the Australian Bureau of Statistics.