Economic Calculators
Understand how economic factors like inflation affect your purchasing power and financial planning. Make informed decisions with accurate economic calculations.
Understanding Economic Factors
What Is Inflation?
Inflation is the rate at which prices for goods and services increase over time, reducing the purchasing power of money. If inflation is 3% annually, something that costs $100 today will cost $103 next year.
The Consumer Price Index (CPI)
CPI measures the average change in prices paid by consumers for a basket of goods and services. It's the most commonly used measure of inflation and is reported monthly by the Bureau of Labor Statistics.
Inflation and Savings
If your savings earn less than the inflation rate, you're losing purchasing power. This is why it's important to invest for returns that exceed inflation, especially for long-term goals like retirement.
Historical Inflation Trends
U.S. inflation has averaged about 3% annually over the long term. However, it varies significantly — from near 0% during recessions to over 10% during the 1970s and early 1980s, and briefly above 9% in 2022.
Frequently Asked Questions
How does inflation affect my retirement planning?
Inflation erodes purchasing power over time. If you plan to retire in 30 years, even 3% annual inflation means prices will roughly triple. Your retirement savings need to grow faster than inflation to maintain your lifestyle. Use our inflation calculator to project future costs.
What investments protect against inflation?
Stocks historically outpace inflation over the long term. Treasury Inflation-Protected Securities (TIPS) adjust with inflation. Real estate and commodities can also serve as inflation hedges. Diversification across asset classes provides balanced protection.
Why does the Fed target 2% inflation?
The Federal Reserve targets 2% annual inflation as a balance between economic growth and price stability. Some inflation encourages spending and investment (rather than hoarding cash), while keeping it low protects purchasing power and economic stability.
How do I calculate inflation-adjusted returns?
To find real returns (inflation-adjusted), use this formula: Real Return = ((1 + Nominal Return) / (1 + Inflation Rate)) - 1. For example, if you earned 8% and inflation was 3%, your real return is approximately 4.85%.
Related Calculators
Savings Calculator
See how your savings grow over time and compare against inflation.
Investment Calculator
Project investment returns to see if they'll outpace inflation.
401(k) Calculator
Plan retirement savings with inflation-aware projections.