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Constant Dollar and Current Dollar Measurement

Constant Dollar and Current Dollar Measurement

May 6, 2019

All earnings, personal income, and retail sales data in the Woods & Poole database are presented in 2012 dollars.  These are called “constant” dollars and are used to measure the “real” change in earnings and income when inflation is taken into account.  For example, it would be incorrect to assume that Americans were more than twice as wealthy in 1980 as in 1970 even though income per capita increased from $4,192 to $10,153;  during those ten years the general price level increased more than 97%, and $10,153 in 1980 could not buy as much as $10,153 could in 1970.  When adjusted for the rate of inflation by making income per capita “constant” in 2009 dollars, the increase from 1970 to 1980 was only 23% ($20,008 to $24,606).

In the Woods & Poole database, the personal consumption expenditure price index is used to convert current dollars into constant dollars;  the price index, revised by the BEA in 2018, is used by Woods & Poole.  The personal consumption expenditure price index for each year from 1969 to 2050 is provided with all Woods & Poole data products.

To convert current dollar data to 2012 dollars, divide the current dollar estimate by the price index for the appropriate year, divided by 100.  To convert constant 2012 dollar data into current dollars, multiply the constant dollar estimate by the price index for the appropriate year, divided by 100.  The formulas below outline the procedure to convert constant dollars to current dollars and vice versa.

 

To convert a current dollar series to constant dollars:

current $ ÷ price index = constant $

 

To convert a constant dollar series to current dollars:

constant $ x price index = current $

 

To convert the price index to a different base year (e.g. 2014):

index(2012=100)÷ 2014 index = price index(2014=100)

  

The same price index is used for the U.S. and all counties in the Woods & Poole database;  hence, the rate of inflation (the percent difference year to year in the price index) is assumed to be constant for all parts of the country.

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