Inflation Calculator – Purchasing Power
Calculate the impact of inflation on purchasing power over time.
What is Inflation and How is it Measured?
Inflation is the rate at which the general level of prices rises, eroding purchasing power. $100 in 2000 bought what $176 buys in 2024 — 76% inflation over 24 years, or roughly 2.3% annually.
In the US, inflation is primarily measured by the Consumer Price Index (CPI), which tracks the prices of a representative "basket" of goods and services including housing, food, transportation, medical care, and education. The Fed targets approximately 2% annual inflation as healthy for economic growth.
How Inflation Affects Your Money
If your savings earn less than the inflation rate, you are losing purchasing power even while the nominal balance grows. A 1% savings account during 3% inflation means your money effectively loses 2% of its real value each year.
This is why investing in assets that historically outpace inflation (stocks, real estate, TIPS) is essential for long-term wealth preservation. Holding cash long-term is a guaranteed slow loss of purchasing power.
Historic US Inflation Rates
Notable periods: 1970s oil crisis (peaked at 14.8% in 1980), Volcker disinflation (rates crushed to low single digits by 1983), 1990s–2010s stable low inflation (1–3%), 2021–2022 post-pandemic surge (peaked at 9.1% in June 2022), 2023–2024 cooling back toward 3%.
The Rule of 72: divide 72 by the inflation rate to estimate how many years it takes prices to double. At 3% inflation, prices double in 24 years.
Frequently Asked Questions
What has been the average US inflation rate historically?
The average annual CPI inflation in the US since 1913 is approximately 3.2%. Since 2000, it has averaged closer to 2.5%. The Fed's current target is 2%.
What is the difference between CPI and PCE inflation?
CPI (Consumer Price Index) measures what consumers pay for a fixed basket of goods. PCE (Personal Consumption Expenditures) adjusts for substitution behavior and covers a broader range of spending. The Fed prefers PCE; CPI tends to run slightly higher.
How can I protect my savings from inflation?
Common inflation hedges: I Bonds and TIPS (inflation-protected government bonds), stocks (companies can raise prices), real estate, commodities. Diversification across these assets has historically preserved purchasing power better than cash alone.