You might not remember the first Austin Powers movie for its references to inflation adjustment. But University of Chicago economist Damon Jones does. 

“There’s the Dr. Evil guy. And he gets frozen in time,” Jones said.

In 1967. And he’s unfrozen in 1997.

“And he’s back to take on the world. So he devises a scheme,” Jones said. Dr. Evil makes a plan to hold the world ransom for $1 million. “And he’s like, ‘This is so much money. They’ll never come up with this money.’ And they’re like, ‘That’s it? That’s all you want?’”

Dr. Evil didn’t adjust for inflation. 

“So $1 million purchased a lot more in his time than when he was unfrozen,” Jones said. “So he should have checked the CPI before going into that negotiation.”

The CPI, or consumer price index, shows that a dollar back in 1967 bought about five times as much as it did in 1997, and more than nine times as much as it does today. 

(It’s fun to play with the CPI inflation calculator.)

This is useful to know when watching old movies — and when listening to U.S. Treasury Secretary Janet Yellen, who mentioned inflation adjustment when she was on “Marketplace” in May.

“The typical American who does not have a four-year college degree has barely seen any increase in their real or inflation-adjusted wages, really, in 40 or 50 years,” she said. 

In other words, people in this group are earning more now. But they can’t feel it.

“They’re able to buy basically the same thing they were 40 or 50 years ago, but they aren’t able to buy a lot more than they were 40 or 50 years ago,” explained UBS economist Alan Detmeister, who used to work for the Federal Reserve.

Another way economists (including Yellen) refer to amounts that have been adjusted for inflation are by calling them “real.” 

“I think about real as measuring the quantity of things and activities that are taking place, to kind of remove the part that’s just due to prices rising,” said Jones of the University of Chicago. 

For example, real gross domestic product went up at an annual rate of 1.6% last quarter.

The “real” means it was adjusted for inflation, and there was an actual increase in economic activity, along with a jump in prices. 

But Detmeister of UBS said most people tend to take dollar amounts at face value, or what economists call “nominal value.”

“People think in nominal terms. So, their wages moving up is good. Prices moving up is bad,” he said.

But those two things are usually linked. Detmeister said we should be thinking: How much more does this wage increase allow me to buy?

So, when you’re going to negotiate for a pay increase, you can check how much the CPI has gone up since your last raise. That way, you’ll know how much more you’ll need just to get by.

After all, you don’t want to pull a Dr. Evil and sell yourself short.

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