The concept of current dollars has to do with understanding the value of a given currency in terms of economic conditions that are contemporary with the period cited. As such, current dollars are not adjusted for inflation. This makes the process of calculating current dollars a viable means of comparing the adjusted cost of goods from two different time frames.
Sometimes referred to as nominal dollars, current dollars can be an important tool when it comes to understanding how a particular currency is functioning over a period of time. Generally, many people do not think in terms of current dollars. Instead, they tend to think in terms of the cost of a good or service costing two to three times more than the same product cost ten or twenty years ago. Employing current dollars can sometimes reveal that when the factor of inflation is removed from the comparison, the currency may have retained more purchasing power than was immediately perceived.
Changes in economic conditions make it impossible to simply look at unit prices and determine if an item costs more today than it did a few years ago. The back and forth shifts that are caused by recessions and periods of inflation impact the relative worth of currency. When the effects of changes are set to one side, it is possible to see if the unit cost of today and the unit cost of the past has any real change in worth or not. As an example, one study has demonstrated that in terms of current dollars, five-pound bag of flour actually costs less in current dollars than it did in the 1920’s.
Economists make use of the concept of current dollars as one economic indicator that can help to predict upcoming trends. Financial counselors and others who are concerned with the prices of essential goods and services can also use an analysis of current dollars to developed budgeting strategies that will help consumers respond in the most fiscally responsible manner.
