How Much Have Prices Actually Risen in the Last 20 Years?

Doesn't it seem like your money isn't going as far as it used to? Do you look back on the good ol' days of 20 years ago and wonder what happened? Here's the truth about inflation and how much the cost of living has risen since 2000.

We keep hearing about how inflation is now at its highest in forty years—and it certainly feels like a dollar doesn’t stretch as far as it used to. When we take a look at the actual numbers from today compared to twenty years ago, a clear picture emerges. Just how much are inflation and price-jacking impacting your cost of living? Read on to find out.

Income

Inflation Concept
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First, let’s compare the median income from 2000 to the current income data. According to the US Census Bureau, the median household income in 2000 was $42,148. The Census Bureau reported a median household income of $70,784 this year. That’s an increase of just under 68%. Sounds great, right? It seems like we’re moving up in the world, at least on paper. Unfortunately, the truth is a lot less optimistic.

Let’s drill down into the most common living expenses, starting with housing, to see exactly how far a dollar will get you today compared to 2000.  

Housing

Red For Rent Real Estate Sign in Front of Beautiful House.
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In theory, housing expenses should total no more than 30% of your total income before taxes. That number has been around since the early 80s when a study by the US government determined that households spending more than that percentage struggled to make ends meet. As Chase Bank helpfully points out, “If you have to spend over 30% per month on rent, you’ll have less money left over for bills and important purchases, making it more difficult to build savings.”

However, there’s a major flaw with that time-honored percentage: students who graduated in 1980 did so with an average of $3,900 in debt. By 2000, that number had risen to just under $17,300. Today, the average student loan debt has ballooned to $39,350. (source)

According to Property Management, “Average rent prices have increased at a rate of 8.86% per year since 1980, consistently outpacing wage inflation by a significant margin; 2021 was an exceptionally volatile year for the market, which appears to continue in 2022.”

In 2000, the median monthly rent in America was $602. Today, it’s $2002, according to Redfin. That’s around a 233% increase. If you plug the rent price from 2000 into the Bureau of Labor Statistics CPI Inflation Calculator—a hand, if depressing, tool—then you’ll find that $602 in 2000 has the equivalent purchasing power of $1058 today. Now, I’m not a math major, but I’m pretty sure that $2002 is more than $1058.

woman at home looking at real estate information on laptop
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Rental prices have outstripped inflation, but what about home ownership? Surely that’s a better deal. The Hill did a deep dive into home prices in America over the last two decades and found that they rose by nearly 160%. “In the first quarter of 2000, the median price of a house was $165,300, rising to $169,800 in 2001 and increasing more significantly to $188,700 by the first quarter of 2002.”

Prices crashed in the wake of the 2008 subprime mortgage crisis and subsequent recession, but they’ve rebounded—and then some. Since 2020, house prices have surged. According to research by Monique Beals for The Hill, “prices have dramatically shot up, reaching medians of $369,800 in 2021’s first quarter and $428,700 in 2022.” Although the increase in housing prices hasn’t been quite as bad as rent, it still outpaces salary gains during that time period.

How can you save on housing costs? The obvious answer is to get a roommate, but that’s not realistic for many households. If you own a home, then downsizing to a smaller place, moving to an area with lower housing prices, or renting out a portion of your home as a vacation rental could all help reduce your mortgage payment. Currently, it’s significantly cheaper to rent instead of buy, according to The Mortgage Reports. That could change, as right now, sky-high interest rates are working to put the brakes on an overheated housing market.

Transportation

Depending on where you live, “transportation” means the cost of buying, fueling, and maintaining a vehicle, the cost of using public transportation, or the cost of ride-sharing services like Uber. Any way you slice it, transportation can eat up a significant portion of your household’s budget.

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In the year 2000, the average car price was $18,745. Adjusted for inflation, that’s $30,349, according to Cheapism. However, Money reports that new vehicles are selling for close to $50,000 today. Pete Grieve noted that “abnormally high prices for cars and gas have made times especially tough for drivers.” Even when you consider the fact that more people are staying home, thanks to the shift to remote work, it’s still a lot more expensive to own a car today.

As of this writing, the national average price of gas per gallon is $3.68. That’s actually a bargain compared to the high prices of a few months ago, with the record high of over $5 hitting in June. Research by CNBC this year revealed that in the year 2000, the average cost was a lot lower: just $1.56 a gallon! Adjusted for inflation, that’s still just $2.66. Once again, the cost of essential goods is much higher now, even when you take inflation into account.

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If you have reliable public transportation in your area, then you could save a lot of money by taking the bus or train. The American Public Transportation Association claims that “[t]he average household spends 16 cents of every dollar on transportation, and 93% of this goes to buying, maintaining, and operating cars, the largest expenditure after housing. A household can save nearly $10,000 by taking public transportation and living with one less car.

If public transportation isn’t an option, then focus on reducing the frequency of trips you make by car. Planning your errands to be as efficient as possible is a great start.

Food

Food costs include both groceries and dining out. Currently, dining out is rising in popularity, gaining 8% over the last year alone. According to data from the Bureau of Labor Statistics, the average person spends around $3000 on dining out every year, which equals $250 a month or $62.50 a week.

Friends reading menus at a restaurant
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Of course, not all dining options are priced the same. Fast food costs less than fine dining, at least in theory. However, Derek Sall told GoBankingRates that people might spend more on so-called cheap food than they realize. “In theory, fast food is cheap,” Sall explained. “That’s its whole premise. However, that mindset is incorrect; if we have the predisposition to believe that fast food is not costing a lot, we are more likely to buy it more often just because it is cheap. This quickly adds up and can become much more expensive than eating in a restaurant once a week.”

Let’s use a Big Mac as our benchmark. According to Axios, fast food prices are up 7.2% year-over-year in 2022—the biggest hike since 1981. In 2000, a Big Mac—just the sandwich, not a combo—cost $4.21. The same sandwich costs $5.94 today. I hate to break it to you, but that’s actually cheaper when you adjust for inflation. All things being equal, a Big Mac should cost $7.40 today when you plug the numbers into the CPI Inflation Calculator. In fact, the price actually came down from a high of $6.47 in 2019.

What gives? Some reports have found that it might be cheaper to dine out than to cook at home, based purely on price increase percentages. WCNC Charlotte found that “grocery prices rose over 13% in July compared to a year ago. Meanwhile, prices at restaurants rose only over 7% during the same time. It’s the largest gap between grocery stores and restaurants in about 50 years.”

Happy couple at grocery store
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Does that mean you should run out to buy every meal at a restaurant? Well, no. For one thing, the price of the food is only one part of the overall cost of dining out, which also includes transportation to and from the restaurant. In addition, restaurant meals tend to be less healthy than those prepared at home, so there’s a hidden healthcare cost baked into dining out.

Read More: What Is Shrinkflation, and How Is It Costing You?

The best way to cut down on your food budget isn’t to skip the grocery store. It’s not even extreme couponing. Instead, you should focus on minimizing food waste. According to the USDA, the United States wastes 30-40 percent of the food supply.  That number includes damage, contamination, and spoilage along the supply chain—but it also includes so-called “ugly” produce being thrown out, as well as consumer food loss. If you’ve ever bought a bagged salad with the intention of having a healthy meal, only to let it go bad before throwing it away, then you’re part of the problem.

In order to save money on food, your best bet is to start planning meals strategically. Look at the groceries currently in your house, then check out the weekly ads at your favorite grocery store. Between what you already have and the items on sale, you should be able to come up with some thrifty meals. Keep recipes simple and try to focus on flexible ingredients that can be used in different ways for multiple meals.

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