Inflation Calculator
Measure the changing value of a dollar. Use our Historical mode to compare buying power across decades, or use Forward Projection to estimate what your money will be worth in the future.
Quick Answer: What is Inflation?
Inflation is the rate at which the general level of prices for goods and services rises, causing purchasing power to fall. Historically, the U.S. average inflation rate is targetted around 2% to 3% annually. If inflation is 3%, a basket of groceries that costs $100 today will theoretically cost $103 next year. Over a 24-year period, prices will double, cutting the true value of your cash savings in half.
In 20 years, to have the same buying power you need:
$18,061
Conversely, if you stuff $10,000 under your mattress today, in 20 years its real purchasing power will only be:
$5,537
Inflation Impact Over Time
0
Nominal: $10,000
Year 1
Nominal: $10,300
Year 2
Nominal: $10,609
Year 3
Nominal: $10,927
Year 4
Nominal: $11,255
Year 5
Nominal: $11,593
Year 6
Nominal: $11,941
Year 7
Nominal: $12,299
Year 8
Nominal: $12,668
Year 9
Nominal: $13,048
Year 10
Nominal: $13,439
Year 11
Nominal: $13,842
Year 12
Nominal: $14,258
Year 13
Nominal: $14,685
Year 14
Nominal: $15,126
Year 15
Nominal: $15,580
Year 16
Nominal: $16,047
Year 17
Nominal: $16,528
Year 18
Nominal: $17,024
Year 19
Nominal: $17,535
Year 20
Nominal: $18,061
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Understanding Purchasing Power
"Purchasing power" is a measure of how many physical goods a single dollar can buy you. When your grandmother says "A gallon of milk used to cost 50 cents!", she is describing purchasing power. Because of constant inflation, the purchasing power of Fiat currency (like the US Dollar) trends downwards permanently over decades.
Consumer Price Index (CPI)
The CPI is a metric calculated monthly by the US Bureau of Labor Statistics. They send employees to supermarkets, dealerships, and hospitals across the country to track the price of a fixed "basket" of essential goods. The change in the total cost of this basket represents the official Inflation Rate.
Beating Inflation
Because cash constantly loses value, you cannot "save" your way to wealth just by putting money in a mattress. To preserve buying power, you must invest your capital in assets that outpace inflation—such as Real Estate, Index Funds, or High-Yield Savings Accounts.
Nominal vs. Real Returns
When looking at your investment portfolio, it is critical to distinguish between Nominal returns and Real returns:
- Nominal Return: The actual percentage your portfolio grew. If your stocks went up 8% this year, your nominal return is 8%.
- Real Return: Your nominal return minus inflation. If your stocks went up 8%, but the US inflation rate was 3%, your Real Return was only 5% (because the general cost of living ate up 3% of your gains).
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Frequently Asked Questions
How is historical inflation calculated?
Historical inflation in the United States is calculated using the Consumer Price Index (CPI), which tracks the average change in prices paid by consumers for a market basket of goods and services over time. By comparing the CPI from one year to another, economists determine the annual inflation rate.
What is the "Rule of 72" for inflation?
The "Rule of 72" is a quick math shortcut. Take the number 72 and divide it by the annual inflation rate. The result is roughly how many years it will take for prices to double (or for your purchasing power to be cut in half). For example, at a 3% inflation rate, prices double every 24 years (72 / 3 = 24).
How does inflation affect my savings?
If you keep money in a standard checking account or physically under a mattress, its nominal value stays the same (a $100 bill is still a $100 bill). However, its real purchasing power drops every year as goods become more expensive. To combat this, your savings must be invested in vehicles that earn an interest rate higher than the current rate of inflation.
What happens to debt during periods of high inflation?
Inflation is generally advantageous for borrowers who hold fixed-rate debt, such as a 30-year fixed mortgage. Because you are repaying the loan with future dollars that are worth less than the dollars you originally borrowed, the "real" cost of your debt effectively decreases over time.
Where does the data for this calculator come from?
The historical mode of this calculator utilizes approximate annual inflation rates derived from the official U.S. Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) databases.