Inflation Calculator

Inflation is the rate at which the general price level of goods and services rises over time, eroding the purchasing power of money. If inflation is 3% per year, a basket of goods that costs $100 today will cost about $103 next year. The Federal Reserve targets 2% annual inflation as the long-run goal.

The long-run average annual inflation rate in the United States has been approximately 3.2% since 1913 (when the Federal Reserve was established). From 1990 to 2020, inflation averaged closer to 2.5% annually. The post-pandemic period (2021-2023) saw elevated inflation peaking around 9% before returning toward the Fed's 2% target.

CPI (Consumer Price Index) measures the average change in prices paid by urban consumers for a representative basket of goods and services including food, housing, clothing, transportation, medical care, and recreation. The Bureau of Labor Statistics (BLS) publishes monthly CPI data, which is the most widely used measure of inflation in the United States.

Inflation reduces the real (inflation-adjusted) value of savings held in low-yield accounts. If your savings account earns 0.5% interest but inflation is 3%, your money loses purchasing power at about 2.5% per year. To preserve purchasing power, savings should earn a return at least equal to the inflation rate.

Real return = nominal return minus inflation rate (approximately). For example, a stock returning 10% annually during a period of 3% inflation has a real return of approximately 7%. The exact formula is: real return = (1 + nominal rate) / (1 + inflation rate) - 1.