r/EconomicHistory • u/realGilgongo • Jul 20 '25
Discussion Inflation rate vs absolute prices: if UK grocery prices were over 40% higher in 1977, does that mean future prices might in fact go down in real terms?
I'm not an economist, so please forgive me if I'm missing something, but...
It's often said that while rates of inflation may go down, over the long term prices go up due to the fact that inflation is (we hope!) always growing at a positive rate, mostly in line with wages. I also see a lot of posts about the devaluation of the currency over time, etc.
A while ago, I discovered this video from 1977 when the UK's rate of inflation was about 16%. Out of curiosity, I used Measuring Worth's calculator to see what the prices would be today, using Tesco supermarket's online prices this year.
This showed the following:
| Item | 1977 price | 2023 price * | Tesco 2025 | Difference |
|---|---|---|---|---|
| Flour 3lbs/1.5Kg | £0.31 | £2.43 | £0.78 | -67.90% |
| 6 eggs | £0.22 | £1.73 | £1.65 | -4.62% |
| 4 x beef burgers | £0.49 | £3.85 | £2.75 | -28.57% |
| Tetley tea bags large | £0.68 | £5.34 | £3.35 | -37.27% |
| Sugar 2lbs/1Kg | £0.26 | £2.04 | £1.09 | -46.57% |
| Pork sausages x 6 | £0.50 | £3.92 | £3.00 | -23.47% |
| Gold Blend coffee 4oz/113g | £1.16 | £9.10 | £4.00 | -56.04% |
* While Measuring Worth's data only goes up to 2023, unlike the Bank of England's RPI calculator, they do fractions of a pound.
I don't know what to conclude from this exactly, and of course I was only able to use the 2023 RPI data, but on the evidence of the video at least, does it mean that prices can go down in real terms (and in this case very substantially) and that the value of the currency can in fact increase? If so, why is this? Does it have a connection with wage growth, for example?
EDIT: Answers seems to be that automation has brought these prices down, while (mainly for consumers at least?) the cost of housing and other assets has gone up, and that the real question is whether people can afford to buy more or less of the above items than in 1977. Overall, it seems that the growth in housing costs has offset the possibly quite large price deflation in consumer goods. So while food was more expensive than today, people could afford it.
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u/Kaliasluke Jul 20 '25
The comment that prices always go up refers to nominal prices - the original reason that economists are interested in collecting and computing the rate of inflation is precisely because the price trend in constant currency terms (“real” is a bit of an outdated term, albeit one still very commonly used) can be the opposite of the nominal trend and it is the constant currency trend that is more interesting, as that is what gives you the better idea of how living standards are evolving - to use your data above, knowing the price of flour went from 31p to 78p basically just tells you inflation exists, when what we really want to know is whether people afford to buy more or less flour than in the past.
That said, I’d be very cautious about drawing conclusions about specific products from long-range inflation data. RPI and CPI are calculated by comparing the prices of a basket of goods over time. However, consumption patterns change over time - e.g. what was the price of an iPhone in 1977? - didn’t exist, so we need to adjust the baskets over time to ensure that the basket is reflective of what people are actually buying. As such, the longer the time period you’re comparing, the less comparable the underlying baskets are and therefore the less accurate the comparisons can be.
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u/realGilgongo Jul 20 '25 edited Jul 20 '25
Not sure I follow. According to the RPI, the price of flour in went down from £2.43 in 1977 to 78p in 2023. And the fact that the (literal) basket of goods is the same is partly why I was interested to do the comparison - no iPhones involved. Just commonly available food items.
Do you mean that people in 1977 may have simply bought less food as they couldn't afford it?
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u/Kaliasluke Jul 20 '25
The figure of £2.43 is not an observed number, it has been calculated using the relative levels of the Retail Price Index in 1977 and 2023. The level of RPI is determined by the prices of the goods included in its basket (of which there are ~700). RPI uses a technique called chain-weighting to dynamically adjust the composition of the basket to take account of changing consumption patterns. As such, the £2.43 number is affected by the price of iphones as the RPI basket of goods now includes iphones. The trend is probably correct, I think it’s fair to conclude that flour is cheaper than in 1977, but I would be cautions about concluding too much about magnitude due to the limitations is RpI.
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u/season-of-light Jul 20 '25
There have been examples of deflation (nominal price decreases) alongside output growth. It was a feature of some late 19th century economies (like the US). May also be the case in China now.
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u/xeere Jul 21 '25
This is about what you'd expect. Food today is obscenely cheap and represents a very small percentage of the average person's expenditure compared with the historical amount.
Though, for practical purposes, it's very difficult to measure the true price of a good and adjust it for inflation. Inflation is often measured through the change in the price of goods, which is problematic because the price of goods adjusted for the change of the price of goods is just a constant value.
A better way to measure the change in cost of these things is through productivity. You look at how many eggs can be produced per acre of land, quantity of feed, hour of labour over time. Productivity has generally gone up over time.
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u/Huge-Captain-5253 Jul 22 '25
Out of interest, why are you hoping that inflation is always growing at a positive rate.
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u/realGilgongo Jul 22 '25
Just out of economic orthodoxy, as deflation is seen as damaging. As long as we're seeing inflation going up in line with wages, all is well. I'm not an economist, but I'm sure others can explain.
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u/Huge-Captain-5253 Jul 22 '25
Deflation is only seen as damaging because the government is a debt holder and inflation allows them to reduce their debt without actually paying it down. To wage earners, it’s a significant negative (even if wages keep pace with inflation) as it causes a significant gap between them and wealthy asset owners (QE in particularly is bad for this).
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u/realGilgongo Jul 23 '25
Yes, so when prices for goods and services fall, the currency can buy more, and the real value of outstanding debt - public or private - increases. So the government effectively has to pay back more in real terms, even if the nominal amount is the same.
However, my undertanding of why deflation is (and has historically been) bad for economies is that it causes a viscious cycle of falling prices and unemployment:
https://www.bankofengland.co.uk/explainers/what-is-deflation
Can you elaborate on how inflation causes inequality (if that's what you imply)?
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u/Huge-Captain-5253 Jul 23 '25
Large numbers move away faster from small numbers when growth is a percentage. This is compounded by QE primarily going into asset prices which are predominately held by the wealthy.
It’s no surprise that the entity that exists to perpetuate inflation in a naturally deflationary environment has come out as pro-inflation.
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u/realGilgongo Jul 23 '25
Be that as it may, economists have been studying the negative effects of deflationary spirals for 200 years, give or take. Seeing the government as a sort of elected conspiracy theory against the common man isn't what I'm going to debate here, I'm afraid.
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u/The_2nd_Coming Jul 20 '25
Stuff has tended to become cheaper in real terms due to productivity increase. We are much better at producing stuff vs in the 70s. It just so happened that governments create money faster than this productivity increase because they love spending "free" money.
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u/DismaIScientist Jul 20 '25
Independent central banks have been independent for many decades now in the rich world.
Even before that, a positive rate of inflation was not due to government spending but because a small positive rate of inflation is believed to make it easier to produce stable growth due to hitting the zero lower bound making monetary policy harder.
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u/The_2nd_Coming Jul 20 '25
Your first paragraph isn't mutually exclusive with what I've said. Your second paragraph doesn't explain what causes inflation.
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u/DismaIScientist Jul 20 '25
Your first paragraph isn't mutually exclusive with what I've said.
Yes it is. Central bank mandates do not usually have anything to do with government spending. Why if the primary motivation of inflation was increased spending would governments a) give up that power and b) give that entity a mandate which has nothing to do with government spending
Your second paragraph doesn't explain what causes inflation.
In long run, inflation is always and everywhere a monetary phenomenon. Inflation is caused by more money in circulation. Ergo nothing to do with government spending (at least in the long run - in the short term it's a bit more complicated than that)
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u/xeere Jul 21 '25
It just so happened that governments create money faster than this productivity increase because they love spending "free" money.
Which government specifically had this policy?
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u/Huge-Captain-5253 Jul 22 '25
Every government has implicitly had this policy. The evidence being the continuous expansion of government debt.
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u/xeere Jul 22 '25
Okay so none of them. Good to know. The expansion of the government debt could be evidence for any number of political stances, including the exact opposite of the one you claim.
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u/Extraportion Jul 20 '25 edited Jul 21 '25
Is this not a contradiction in terms?
“Stuff” has not tended to become cheaper in real terms, because real value is nominal value adjusted for inflation, and inflation is a measurement of the price of “stuff” (a basket of goods and services).
It is saying things tend to be cheaper than the average price at which prices have risen. For that to be true we would have had deflation.
[edit for clarification]
I suspect what you are referring to is an increase in real earnings (i.e. wages have outpaced inflation), meaning that goods and services have become more affordable?
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u/BeefCakeBilly Jul 20 '25
Op means “Real” in the economic context. Which means adjusted for inflation.
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u/xeere Jul 21 '25
But the way we measure inflation is through the change in the price of a basket of goods. So if eggs increase in price, we count that as inflation. Adjusting the price of eggs for inflation is, in part, adjusting them for the price of eggs.
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u/BeefCakeBilly Jul 21 '25
What op is referring to in real terms is the price relative to the basket of goods at that time.
If in 1960 the nominal price of a dozen eggs was 57 cents. Equivalent to $6.15 today.
This morning at target, eggs were 3.60 in 2025 dollars. Which would be 33 cents in 1960 dollars. Eggs have gotten cheaper over that period in real terms.
This is what op was claiming in real terms things tend to get cheaper.
Over different periods of time obviously this will change given different circumstances and goods but this is what op was claiming.
It’s not 100 percent accurate but it’s a fairly consistent general trend.
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u/xeere Jul 21 '25
If in 1960 the nominal price of a dozen eggs was 57 cents. Equivalent to $6.15 today.
How did you work this out? What are you using to measure the value of currency?
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u/BeefCakeBilly Jul 21 '25
Just using the bls number by way of this article.
https://www.chicagotribune.com/2021/11/08/the-price-of-bacon-and-eggs-the-year-you-were-born/
You don’t use anything to value the currency, it’s the nominal price not the real price.
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u/xeere Jul 21 '25
Do you know how that article finds the price of bacon? Using the annual overall CPI, which includes the price of bacon and many other things which have gone down in cost.
The result is that all of the past prices will appear lower than they actually were. Inflation is underestimated because you are measuring it by looking at the price of goods, which is decreasing in real terms.
In other words, OP is understating the degree to which prices have decreased. Things used to be even more expensive in the past than this number would suggest. What OP and your article actually measures is the relative change in the price of eggs when compared with other goods.
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u/Extraportion Jul 21 '25
It is just Op’s ambiguous wording.
I suspect they mean that real earnings have increased over time due to productivity increases, which means goods and services have become more affordable overtime.
That is, however, completely different to most goods and services have tended to fall in value in real terms - because the latter would mean deflation, which we do not see in the data.
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u/BeefCakeBilly Jul 21 '25
Yea this is fair enough. Effectively it is the same thing for a consumer perception level from what I can tell.
The more important aspect is for policy makers as to why prices feel more affordable.
If it’s due to higher wages vs cheaper real terms due to productivity gains.
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u/Extraportion Jul 21 '25
Op is referring to real earnings increasing rather than most goods decreasing in value in real terms. The latter cannot occur due to the way inflation is calculated based on the change in value of a representative basket of goods and services.
The point that op is making is that real earnings have increased overtime, therefore making goods and services more affordable. That is not the same as most goods declining in value in real terms.
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u/BeefCakeBilly Jul 22 '25
I understand that, from the consumers perspective they are essentially the same thing.
From a policy making standpoint the distinction it’s important , hence why I mentioned that in my previous response.
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u/Extraportion Jul 22 '25
They’re really not.
I really do hear what you’re saying - which is that the real earnings growth is what a customer “feels” - but the way the original comment is phrased is that the price of goods is falling in real terms. That is deflation, and it has a very different macro impact to real earnings growth; one which definitely has a customer impact
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u/Extraportion Jul 20 '25
I am aware, give my comment another read.
Inflation is the general increase in the prices of goods and services in an economy over time. It is an average. Mathematically, the constituents of an average cannot, on average, underperform the average.
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u/The_2nd_Coming Jul 20 '25
That's not what economic "real terms" means.
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u/Extraportion Jul 20 '25 edited Jul 20 '25
https://en.m.wikipedia.org/wiki/Real_and_nominal_value
What part of the definition do you think I am disagreeing with?
The bit I am questioning is whether “Stuff” (all products and services), can “tend” (i.e. in greater than 50% of cases) fall in price in real terms. It could occur against a specific index (eg a specific consumer or retail price index), but conceptually if we take “stuff” to mean all products and services, then I am not convinced it can happen due to the way that averages work.
It’s like that old Dunning-Kruger observation that the average person believes that they are of above average intelligence. It is a contradiction in terms.
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u/The_2nd_Coming Jul 20 '25
Labour typically isn't part of "stuff" (goods). Of course if you include the cost of labour (wages) then the average basket will stay the same in relative terms.
The point is stuff tends to get cheaper relative to wages in real term.
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u/Extraportion Jul 20 '25
Labour is part of “stuff”, because it is an input cost. However, I see what you are getting at, you’re talking about real earnings, which is a fair observation.
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u/The_2nd_Coming Jul 20 '25
But productivity increases usually means the amount of labour needed to produce the same amount of stuff goes down, even if the per hour cost stays the same.
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u/Extraportion Jul 20 '25
Yes, I understand that, we are just talking about different things. You’re talking about real earnings rather than the price of goods and services in real terms.
You can plot the price of goods and services in real terms and by definition you will not find that goods/services tend to be lower than inflation.
However, real earnings have increased, which makes goods and services more affordable.
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u/fanculo_i_mod Jul 20 '25
Stuff that is manifactured in a factory got cheaper thanks to electronics, robots, machines.
Services, housing balloned.