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# U.S. inflation rate in 1989: 4.82%

### Inflation in 1989 and Its Effect on Dollar Value

Purchasing power decreased by 4.82% in 1989 compared to 1988. On average, you would have to spend 4.82% more money in 1989 than in 1988 for the same item.

In other words, \$1 in 1988 is equivalent in purchasing power to about \$1.05 in 1989.

The 1988 inflation rate was 4.14%. The inflation rate in 1989 was 4.82%. The 1989 inflation rate is higher compared to the average inflation rate of 2.46% per year between 1989 and 2019.

Inflation rate is calculated by change in the consumer price index (CPI). The CPI in 1989 was 124.00. It was 118.30 in the previous year, 1988. The difference in CPI between the years is used by the Bureau of Labor Statistics to officially determine inflation.

 Average inflation rate 4.82% Converted amount (\$1 base) \$1.05 Price difference (\$1 base) \$0.05 CPI in 1988 118.300 CPI in 1989 124.000 Inflation in 1988 4.14% Inflation in 1989 4.82%

USD Inflation since 1913
Annual Rate, U.S. Bureau of Labor Statistics CPI

### Inflation by City

Inflation can vary widely by city, even within the United States. Here's how some cities fared in 1988 to 1989 (figures shown are purchasing power equivalents of \$1):

Boston, Massachusetts experienced the highest rate of inflation during the 1 years between 1988 and 1989 (5.83%).

Seattle, Washington experienced the lowest rate of inflation during the 1 years between 1988 and 1989 (0.00%).

Note that some locations showing 0% inflation may have not yet reported latest data.

### Inflation by Country

Inflation can also vary widely by country. For comparison, in the UK £1.00 in 1988 would be equivalent to £1.08 in 1989, an absolute change of £0.08 and a cumulative change of 7.78%.

In Canada, CA\$1.00 in 1988 would be equivalent to CA\$1.05 in 1989, an absolute change of CA\$0.05 and a cumulative change of 5.26%.

Compare these numbers to the US's overall absolute change of \$0.05 and total percent change of 4.82%.

### Inflation by Spending Category

CPI is the weighted combination of many categories of spending that are tracked by the government. This chart shows the average rate of inflation for select CPI categories between 1988 and 1989.

Compare these values to the overall average of 4.82% per year:

Category Avg Inflation (%) Total Inflation (%) \$1 in 1988 → 1989
Food 5.84 5.84 1.06
Shelter 4.52 4.52 1.05
Energy 5.71 5.71 1.06
Apparel 2.78 2.78 1.03
New vehicles 2.32 2.32 1.02
Used cars and trucks 2.06 2.06 1.02
Transportation services 5.92 5.92 1.06
Medical care services 7.63 7.63 1.08
Medical care commodities 7.76 7.76 1.08

It's important to note that not all categories may be tracked since 1988. This table and visualization use the earliest available data for each category.

### How to Calculate Inflation Rate for \$1, 1988 to 1989

This inflation calculator uses the following inflation rate formula:

CPI in 1989CPI in 1988
×
1988 USD value
=
1989 USD value

Then plug in historical CPI values. The U.S. CPI was 118.3 in the year 1988 and 124 in 1989:

124118.3
×
\$1
=
\$1.05

\$1 in 1988 has the same "purchasing power" or "buying power" as \$1.05 in 1989.

To get the total inflation rate for the 1 years between 1988 and 1989, we use the following formula:

CPI in 1989 - CPI in 1988CPI in 1988
×
100
=
Cumulative inflation rate (1 years)

Plugging in the values to this equation, we get:

124 - 118.3118.3
×
100
=
5%

### Alternate Measurements of Inflation

The above data describe the CPI for all items. Also of note is the Core CPI, which measures inflation for all items except for the more volatile categories of food and energy. Core inflation averaged 4.51% per year between 1988 and 1989 (vs all-CPI inflation of 4.82%), for an inflation total of 4.51%.

When using the core inflation measurement, \$1 in 1988 is equivalent in buying power to \$1.05 in 1989, a difference of \$0.05. Recall that for All Items, the converted amount is \$1.05 with a difference of \$0.05.

In 1988, core inflation was 4.41%.

### Comparison to S&P 500 Index

To help put this inflation into perspective, if we had invested \$1 in the S&P 500 index in 1988, our investment would be nominally worth approximately \$1.45 in 1989. This is a return on investment of 45.01%, with an absolute return of \$0.45.

These numbers are not inflation adjusted, so they are considered nominal. In order to evaluate the real return on our investment, we must calculate the return with inflation taken into account.

The compounding effect of inflation would account for 4.60% of returns (\$0.02) during this period. This means the inflation-adjusted real return of our \$1 investment is \$0.43.

Investment in S&P 500 Index, 1988-1989
Original Amount Final Amount Change
Nominal \$1 \$1.45 45.01%
Real
\$1 \$0.43 42.94%

Politics and news often influence economic performance. Here's what was happening at the time:

• The USSR withdraws its troops from Afghanistan.
• Iran and Iraq announce a ceasefire after 8 years of war.
• Approximately 50,000 Kurdish civilians and soldiers are killed by Iraq.
• Mikhail Gorbachev Chairman becomes president of the USSR.
• Benazir Bhutto becomes the first female leader of a Muslim country in Pakistan.

### Data Source & Citation

Raw data for these calculations comes from the Bureau of Labor Statistics' (CPI), established in 1913. Inflation data from 1665 to 1912 is sourced from a historical study conducted by political science professor Robert Sahr at Oregon State University.

You may use the following MLA citation for this page: “Inflation Rate in 1989 | Inflation Calculator.” U.S. Official Inflation Data, Alioth Finance, 24 Oct. 2019, https://www.officialdata.org/inflation-rate-in-1989.