What gives? Well, the method we’ve been using to adjust the prices is based on a blend of the Bank of England’s modern Consumer Price Index and older Retail Price Index data – measures of the cost of living.
But the growth of the UK economy over the decades has increased people’s real income, meaning that even though commodity prices have continually inflated, people have had more and more to spend.
In 1950, people simply consumed a lot less; that A90 would have been a much more significant investment for old Gordon than a Qashqai would be for a dentist today.
Measuring Worth is a fascinating academic project that has created an inflation calculator to provide some illustration of this.
One of the measures it offers is a labour value – calculated as the multiple of the average wage that a worker would need to buy a commodity, such as a car.
All of a sudden that A90 was really worth more like £122,600, the same as a Mercedes S-Class today, and the Morris more like £43,200, or a BMW 4 Series.
Look at the graph below and you can see that the gap between our two measures of inflation closes rapidly through the 1950s as Britain rebuilt its economy after the war, closed up significantly through the 1980s and 1990s and converged in the mid-2000s – about the time when the UK’s economy and the increase in the average standard of living entered the period of stagnation that persists today.
