Adjusting for inflation: A beginner’s guide
When Daniel Craig hit theaters last year in Quantum of Solace, the 22nd film in the James Bond spy series, his ability to dispatch bad guys (and charming good looks, no doubt) helped it earn $168.4 million. That was enough to rank Solace among the top 10 grossing films of 2008.
But how did Solace fare against the rest of the Bond canon, which stretches back to 1963′s Dr. No? The answer depends on whether you adjust for inflation.
We all know that the price of a loaf of bread isn’t what it used to be. The cost of consumer goods tends to rise each year, except during downturns or various calamities. So, taking inflation (or deflation) into account is the only way to meaningfully compare dollar amounts over time.
There are plenty of apps just for this. The Bureau of Labor Statistics offers one basic calculator, and there’s another at this site. They’re fine for a quick check, but I’d rather do my own calculations. A web app might not have the latest data. And if you’re adjusting more than a couple of amounts, using a spreadsheet will save time. Here’s an exercise from Bond-land:
Let’s compare the $168.4 million Quantum of Solace earned in 2008 to the $35.4 million earned by 1973′s Live and Let Die. In 2008 dollars, which movie earned more?
Finding out is fairly straightforward:
1. Get the index that measures the cost of goods and services. In the U.S., the most widely cited is the Consumer Price Index for All Urban Consumers, aka the CPI-U. The Bureau of Labor Statistics’ main page on the CPI is here, and you should spend some time on the FAQ. The index values are in this table, which goes back to 1913. It also has the annual average and the yearly percent change in both the annual average and the December values.
2. For this exercise, we’ll use the average CPI-U values for 1973 (44.4) and 2008 (215.303). Because the CPI-U includes relatively volatile items such as food and fuel, I tend to avoid the monthly values with their fluctuations. If you want to adjust to the most recent data available, consider averaging the most recent six months of CPI-U values.
3. Multiply the 1973 film’s gross times the 2008 CPI-U average. Divide that product by the 1973 CPI-U average. Here’s the setup:
2008_value = (1973_amount * 2008_CPI-U) / 1973_CPI-U
With the numbers plugged in, we have:
2008_value = ($35,377,836 * 215.303) / 44.4
Always remember that operations in parenthesis happen first. Do the math, and we get:
2008_value = $171,553,023
So, though Quantum of Solace’s $168.4 million was hefty, after adjusting for inflation it’s about even with what Live and Let Die’s original box office is worth today.