Inflation Calculator

Inflation reduces purchasing power by increasing the cost of goods and services over time. A dollar today will buy less in the future if inflation continues. For example, at 3% annual inflation, $100 today will only have the purchasing power of about $74 in 10 years.

The Federal Reserve targets a 2% annual inflation rate as optimal for a healthy economy. This rate encourages spending and investment while maintaining price stability. Rates significantly above or below 2% can indicate economic problems.

To protect against inflation, invest in assets that historically outpace inflation such as stocks, real estate, and Treasury Inflation-Protected Securities (TIPS). Keeping too much cash loses value over time due to inflation eroding purchasing power.

The average US inflation rate has been approximately 3.3% since 1913. However, it varies significantly by decade - the 1970s saw high inflation averaging 7.1%, while the 2010s averaged only 1.8%.

The Consumer Price Index (CPI) measures the average change in prices paid by consumers for goods and services over time. It's calculated monthly by the Bureau of Labor Statistics based on a basket of common items. CPI is the primary measure used to calculate inflation rates and adjust wages, benefits, and contracts.

Inflation is a general increase in prices over time, reducing purchasing power. Deflation is the opposite - a decrease in prices. While deflation sounds good, it can harm the economy by encouraging people to delay purchases and reducing business profits. Central banks generally prefer mild inflation over deflation.

Yes, always account for inflation when planning retirement. Use real returns (after inflation) rather than nominal returns. If you need $50,000/year today and retire in 20 years at 3% inflation, you'll need about $90,000/year for the same purchasing power. Most retirement calculators include an inflation adjustment.