My folks bought a brand new 3/4-ton diesel Ford pickup in 1986 for $15,000 and it's still running strong. Dad still uses it every once in awhile to tow a trailer full of cows to the auction barn. However, the late '80s -- a time of fierce drought, $2.50 spring wheat and 60-cent cattle -- was not an easy time for anyone to be farming. I must have overheard some conversation about how expensive the truck was, because I remember my 3-year-old self proudly walking up to Mother with a heaping handful of pennies "to help pay for the pickup."

In my mind then and as I remember it now, those pennies had a lot of value. As it happens, they really were worth more then than they are now. Let's say my little hands held 30 pennies. Those same 30 pennies from 1986, adjusted for the past 25 years of inflation, would be worth $0.62 in August 2011. Think of it this way: if a candy bar cost thirty cents back then, today the same candy bar would have to be worth $0.62 to account for how the value of all the goods and services that go into the creation of a candy bar have changed, and to account for how the purchasing power of the dollar itself has changed over time.

Conversely, if we took the worth of our dollars in 2011 into a time machine and travelled back to 1983, for instance, it would take $7.27 in our dollars to buy the same bushel of corn that could have been bought for $3.21 by someone paying with 1983 dollars. Similarly, U.S. consumers were paying for crude oil with a $30 per barrel price tag in 1983, but that value today would be equivalent to $69 per barrel in inflated 2011 dollars. Live cattle, which have moved from $45 per cwt to $115 per cwt in nominal terms over the past 38 years, have actually posted a steep downtrend in inflation-adjusted terms: from $231 per cwt in 1973 to $115 per cwt in 2011-equivalent dollars. Gold is another commodity whose recent highs seem less impressive once they're adjusted for inflation: the monthly average price in 1980 is equivalent to $1,664 per ounce in 2011 dollars, and at its peak on January 21, 1980 ($875 per troy ounce) it was equivalent to $2,399 per ounce today.

Going back to the grains -- even if we ignore the Russian grain crisis fueled '70's -- $8.88 hard red winter wheat (the average inflation-adjusted price during 1982) or $16.14 soybeans (the average 1983 price in 2011 dollars) isn't as impressive or frustrating as it might seem through the lens of today's situation. On the one hand, there are more people and more global demand than ever before and meanwhile not really that much more land in production. On the other hand, technology has helped increase yields, but not enough to keep us from operating at some of the tightest stocks-to-use ratios in history. Yes, our supply chain infrastructure has grown efficient enough to shield the world from some of the pain that would otherwise be experienced by such tight inventories. But still -- long-term economically speaking -- shouldn't we be seeing some of the highest prices ever, even in inflation-adjusted terms?

To answer that, consider that "inflation" generally means rising prices across a broad sector of goods and services in an economy. It can be both bad and good -- bad in the sense that saved dollars lose purchasing power or good in that it encourages economic projects. When it's measured by the U.S. Bureau of Labor Statistics' Consumer Price Index (CPI), as I have done in the previous examples, it sets each time period's value according to a monthly index of the "prices paid by urban consumers for a representative basket of goods and services." Basically, these are the consumers who today have to eventually buy bread made from $8 wheat, or ethanol made from $7 corn, or beef fed with $7 corn, or poultry or fish fed with $350 soybean meal.

So when we push against old highs on the inflation-adjusted chart, we push against the consumers' demonstrated ability to pay with equivalent money in the past. If they weren't able to sustain those values in the past, what allows them now -- in the midst of what many economists are calling a double-dip recession -- to sustain them again? And if they can't, that means these price levels won't be supported for long no matter how bad the crops' yields may have been affected by the summer's heat. For what it's worth, it looks like corn has a better history of demonstrated willingness to pay around today's inflation-adjusted price levels than crude oil does. But if it cheers us up a little bit to have grain prices inflated, we must also consider that input costs will inflate at roughly the same rate. That's why, even though all this is all old news, it's always interesting when prices get to historic levels to actually compare them against real historic terms.

It's also very timely to take a look at inflation during a week when the U.S. Federal Reserve might -- and I emphasize "might" -- look into pumping hundreds of billions more dollars into the economy under the banner of Quantitative Easing, Version 3. By definition, inflation also occurs whenever there is more money in circulation. So if Ben Bernanke steps to the podium on Friday in Jackson Hole, Wyo., and delivers what the stock market has been asking for -- QE3 -- it truly will take more dollars, at a cheaper value per dollar -- to buy a bushel of anything. My 30 cents in 1986 will start to look bigger and bigger.

(CZ/SK)

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