## Measuring the Effect of Inflation on U.S. Public Libraries

Inflation is a pervasive phenomenon and it has several effects on libraries. Most obvious is shown in the decline in purchasing power in the dollars libraries spend. Inflation is usually thought of as an increase in prices but that increase results from each dollar’s being worth less. Therefore, it takes more dollars to do what fewer dollars did formerly. Even though the printed analysis was incorrect in concluding that the purchasing power of the total operating expenditures in the U.S. had turned down, still, note the loss of purchasing power in library budgets. Public libraries in the United States in FY 2007 had \$10 billion dollar to spend on operations and those dollars had about the purchasing power of about \$7 billion in 1992 dollars.

The method used here to calculate the effects of inflation were relatively simple. I used the Consumer Price Index (CPI) Inflation Calculator at the U.S. Bureau of Labor Statistics to calculate the annual purchasing power of current dollars. Thus, \$100 in 1992 purchasing power would take \$147.78 in 2007. To calculate the "constant" 1992 value of \$147.78 2007 dollars, one would divide that number by the 2007 value of the 1992 dollars.

There are many simplifying assumptions in such an analysis. For instance, as is well-known, the NCES/IMLS data use Fiscal Years and that the Fiscal Years of the several states vary. Thus the inflation measure may or may not be synchronized with the data. There are other such assumptions. If they bother you, read Oskar Morgenstern’s On the Accuracy of Economic Observations (various editions) and relax. Measuring economic variables is very difficult and simplifying assumptions abound.

There is a problem in comparing the purchasing power of currency when it changes over time. Prices may rise and fall for different reasons such increases in food prices brought on by drought because of scarcity or decreases brought on by abundance from good weather. These kinds of changes are not "inflation" as we normally use the term. Inflation is the decline in the value of a currency and, as it is often described, there are more dollars to be spent on the same number of goods, the price in those less-valued dollars increases. It is a hard thing to measure. Different people purchase different things with their dollars in different areas of the country and in different years so the effect of a decline in a currency really varies with each person or company spending money depending on a host of conditions. We can try to make an estimate and given that we are starting this analysis with national data on a large group of libraries operating under varying conditions, a national estimate of inflation as it affects libraries would be useful.

A problem with the CPI is that it measures typical purchases of groups of people. Libraries do not purchase a typical marketbasket of the same kinds of goods as people so necessarily the CPI will be inexact. Two more scientific treatments of the subject are examined next.

## Public Library Price Index (PLPI)

For libraries, we can use the indexes—such as the Public Library Price Index (PLPI) which was calculated by Kent Halstead of the Research Associates of Washington and published in the Bowker Annual through 2003. I believe it no longer is published so I could not use it to analyze prices through the latest public library data.

The PLPI begins in 1992, that is, 1992=100. It was a serious effort to get at the real effects of currency changes on public libraries. It is probable that the CPI does not correctly estimate the effect of inflation on public libraries as closely as PLPI did but it is what we have.

What is the relationship between the PLPI and the CPI? Here are the values for the years the two overlap. The PLPI comes from the 2003 Bowker Annual, p. 457. A few years ago, I did a simple regression analysis and found that there was an R2 of 98.5 or 98.5% of the variance of one is "explained" by the other. This is a very high number so the CPI is a better predictor of price changes for public libraries than I would have thought. Plotting the residuals by year reveals a very slight U-shaped pattern.

## Measuring Inflation in Public Libraries

In 1999, NCES published Measuring Inflation in Public Libraries: A Comparison of Two Approaches, the Input and the Cost of Services Index examines two approaches. It is quite detailed and would have been a good basis to structure a systematic approach to measuring inflation. The abstract concludes, in part: "However, because they data [those public library data published by the NCES and recompiled here] are not indexed for inflation, the true impact on public libraries cannot be assessed." It makes recommendations for variables to be added to the (then) Federal-State Cooperative System for Public Library Data (FSCS) which recommendations were not followed.

It would appear that the Consumer Price Index is what we will have to use for the immediate future if we wish to make calculations of the purchasing power of library budgets in the U.S.

##### July 9, 2009

1Squeeze Play: Public Library Circulation and Budget Trends, FY1992-FY2004, Robert E. Molyneux, Public Library Quarterly, 26, 3 / 4, 2007, pp. 101-107.