Avatar and long-term inflation

Every now and then, a fact or illustration arises which vividly reveals the long-term corrosive impact of inflation, that insidious force which usually remains invisible and all-but-unnoticed.

The following chart (from IMDb data) shows estimated US box office records for the all-time biggest movies. Note that while the current box office champion, James Cameron's 3-D science fiction adventure Avatar, recently became the all-time worldwide box office champion by overtaking Cameron's Titanic in total ticket sales, when adjusted for inflation of ticket prices it is only ranked number fifteen (this list shows domestic ticket sales because, when adjusting for the inflation of the US dollar, US box office figures are used rather than world-wide figures).

1. Gone with the Wind $1.538 billion
2. Star Wars $1.355 billion
3. Sound of Music $1.084 billion
4. ET $1.080 billion
5. Ten Commandments $997 million
6. Jaws $975 million
7. Titanic $977 million
8. Dr. Zhivago $945 million
9. Exorcist $841 million
10. Snow White $829 million
11. 101 Dalmations $760 million
12. Empire Strikes Back $747 million
13. Ben Hur $746 million
14. Return of the Jedi $715 million
15. Avatar $708 million so far

In other words, much of the credit for Avatar's record-breaking box office figures can be attributed to inflation of ticket prices -- which is to say, to the declining purchasing power of your money over long periods of time. Because much smaller amounts of money purchased so much more back in the day when Gone with the Wind was in theaters, its sales figures (which seem small by today's standards -- only $198 million) still make it the all-time box-office champ in the US ($1.53 billion in today's dollars).

Even when inflation is "relatively low," it cuts the purchasing power of everyone's money over the decades. At a 3% annual rate of inflation, money loses fully half of its purchasing power in about 23-and-a-half years. The most recent Dalbar study of investor behavior (2009) showed inflation averaging 2.89% over the past 20 years.

In spite of its ravaging power, it is easy to overlook the impact that inflation has on a family's long-term wealth and estate over the decades. Little illustrations such as the disconnect between Avatar's sales in current dollars versus its standing when adjusted for inflation can serve as valuable reminders of this slow decay over time.

We have written several times about the subject of inflation, and why the best defense against its effects over time has been ownership of growing companies (and not commodities such as gold). For readers interested in reviewing some previous discussions on this subject, we would recommend:

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