Inflation Calculator

Inflation is the general rise in prices over time, which reduces the purchasing power of money. In the U.S., it is primarily measured by the Consumer Price Index (CPI), published monthly by the Bureau of Labor Statistics (BLS). The CPI tracks the average price change for a basket of goods and services commonly purchased by households, including food, housing, clothing, transportation, and medical care. A second key measure, PCE (Personal Consumption Expenditures), is preferred by the Federal Reserve.

Since 1913, the U.S. has averaged approximately 3.1% annual inflation. Rates have varied widely: very high in the 1970s–early 1980s (peaking near 15%), low and stable through the 1990s–2010s (1–3%), and a spike in 2021–2022 reaching 7–9% before cooling. The Federal Reserve's official target is 2% annually.

Inflation erodes purchasing power silently. If your savings account earns 1% interest but inflation runs at 3%, your money loses about 2% of its real value each year. Over 20 years at 3% inflation, $10,000 today will only buy what $5,537 can now. This is why financial advisors recommend investing in assets that outpace inflation for long-term goals, rather than holding large amounts of cash.

The "real return" is your investment return minus inflation. If your portfolio earned 7% and inflation was 3%, your approximate real return was 4%. More precisely, use the Fisher equation: real rate = (1 + nominal rate) / (1 + inflation rate) − 1. So (1.07 / 1.03) − 1 = 3.88% real return. This is the figure that tells you whether your wealth is actually growing in purchasing power terms.

Because it was worth more — in terms of what it could buy. Due to cumulative inflation, $1 in 1980 had the same purchasing power as roughly $3.75 today. A movie ticket in 1980 cost about $2.69; today it averages over $13. A gallon of milk was around $1.12 vs. nearly $4 today. Older generations aren't imagining things — money genuinely bought more in the past.

Common strategies include: (1) I Bonds — U.S. Treasury bonds whose interest adjusts with CPI; (2) TIPS (Treasury Inflation-Protected Securities) — government bonds indexed to inflation; (3) Equities — the stock market has historically returned ~7% nominally, outpacing inflation over long periods; (4) Real estate — property values and rental income tend to rise with inflation; (5) Commodities — gold and other commodities often track inflation. Keeping significant cash idle in a low-yield account is typically the worst strategy during high-inflation periods.

CPI (Consumer Price Index), from the Bureau of Labor Statistics, measures price changes for a fixed basket of goods and services bought by urban consumers. PCE (Personal Consumption Expenditures), from the Bureau of Economic Analysis, covers a broader range of spending and adjusts its basket as consumers substitute between goods when prices change. The Fed prefers PCE as its benchmark. PCE typically runs 0.3–0.5 percentage points below CPI. Both measure the same underlying phenomenon — how much more expensive things are getting — but with slightly different methodologies and weights.