If you want to adjust a series of current dollar values (a.k.a "nominal") like wages, prices, or investment returns, for inflation (a.k.a. "real"), you first need a price index. A price index is created by taking a basket of goods or services and tracking the purchasing power needed to buy the same basket over time. The basket, theoretically, doesn't change resulting in a consistent measure of inflation. There are many price indices available for use depending on what you want to adjust for inflation. The Bureau of Labor Statisics is a good source for price indices and so is Economagic.
The Consumer Price Index is a common price index used to adjust many statistics for inflation. One example is the Cost of Living Adjustment (COLA), that adjusts the amount retirees receive in Social Security benefits. The purpose of the SS system is to provide retirees with an adequate amount of income to live on consistent (to a point) with the standard of living they had when they retired. If SS benefits were not adjusted for inflation, then the purchasing power of the money they receive would buy less and less over time.
There are other price indices that may be better measures of inflation for specific goods or services. If you were interest in adjusting wages for inflation then you would use the "employment cost index" and you could choose a version of the ECI for the particular occupation or industry.
In the post, I was interested in adjusting the appropriation from the state and the cost of tuition and fees for a general measure of inflation so I chose the CPI for all goods and services in the Mid-Atlantic region (since the data represents PA).
Here is an excerpt from my excel spreadsheet.
|Year||Nominal State Appropriation per FTE student ||CPI - PA,NJ,DE,MD||Real or Inflation Adjusted Appropriation per FTE Student |
FTE = Full Time Equivalent student
As you can see, once you adjust the nominal appropriation for inflation, it starts to fall short of the inflation adjusted value around 1988. By the end of 2008, the two measures are $1600 apart.
To calculate the "real" column, use the following equation:
By adjusting the data for inflation, we can see that despite the nominal value per student increasing every year, the inflation adjusted value should be much more. In other words, the actual contribution from the state subsidizes a lot less of a college education in 2008 than it did in 1984 and students are paying more for their education.