I’ve written about inflation many times, and how important it is to get a handle on its silent but corrosive effect on the way we judge our businesses. Even though the Producer Price Index (PPI) for printing prices shows that printing prices have not changed for a long time, and at some points have actually declined, the paychecks and the profits of owners have to buy real goods and services in the consumer market. Yes, we have to feed families, educate children, and take care of homes, and so many other things. For this reason, we adjust economic data using the Consumer Price Index (CPI).
(If you want a description of the various methods for inflation adjustment, one of my April 2008 columns walks through the challenges. Also, the latest data package of historical printing shipments in the WhatTheyThink eStore has its historical data in multiple inflation method formats).
To make the adjustment, all one needs to do is to open up a spreadsheet of company data, such as an income statement or balance sheet that has multiple years of data for comparison. The table below shows the number to use for each year. So if you’re looking at the income statement for 2007, multiple all of those dollar figures by 1.038, just as indicated by the chart.
The results can be dramatic, sometimes breathtaking from a management sense. Because printing prices are not keeping up with inflation, that’s exactly the reason to emphasize keeping up with the costs of what we buy as consumers.
As an example of the difference, look at a recent press release about book sales and how they have been increasing, and then look at this spreadsheet that we have adjusted using the CPI. You walk away with quite a different picture of the marketplace.
One hopes that the exercise on imparts a greater sense of managerial urgency about things. The cumulative effects of inflation are rarely considered in our decisions. Doing so regularly might help create a sense of finally getting ahead of what always seem to be steadily increasing costs that sap the purchasing power of employee paychecks and business profits.
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