Inflation Calculator
See how inflation erodes your purchasing power over time. Understand the real value of your money and plan investments that outpace rising prices.
What Is Inflation?
Inflation is the rate at which prices rise, reducing what your money can buy over time.
CPI Measurement
The Consumer Price Index (CPI) tracks the cost of a basket of goods and services. The Bureau of Labor Statistics publishes CPI monthly, and the annual change is the most common inflation measure.
Purchasing Power
At 3% inflation, $100 today buys only $74 worth of goods in 10 years and just $55 in 20 years. Your money loses value even sitting in a savings account if the interest rate is below inflation.
The Fed's Role
The Federal Reserve targets 2% annual inflation. They adjust interest rates to control it. Higher rates slow spending and reduce inflation; lower rates stimulate growth but may increase inflation.
Real vs. Nominal
Nominal returns are before inflation; real returns subtract inflation. A 10% investment return with 3% inflation gives you only 7% real return. Always think in real terms when planning.
Understanding Inflation's Impact
Historical US Inflation Rates by Decade
| Decade | Average Annual Inflation | Cumulative Price Increase | Notable Events |
|---|---|---|---|
| 1950s | 2.0% | 22% | Post-war stability |
| 1960s | 2.5% | 28% | Vietnam War spending |
| 1970s | 7.1% | 99% | Oil crisis, stagflation |
| 1980s | 5.6% | 72% | Volcker rate hikes |
| 1990s | 3.0% | 34% | Great Moderation |
| 2000s | 2.6% | 29% | Housing bubble, GFC |
| 2010s | 1.8% | 19% | Low inflation era |
| 2020s | 4.5%* | 25%* | COVID, supply chains |
*2020s data through 2025, annualized estimate
How Inflation Erodes Purchasing Power
Even moderate inflation has a dramatic long-term effect. Here is what $100 is worth in real purchasing power at different inflation rates:
| Years | 2% Inflation | 3% Inflation | 4% Inflation | 5% Inflation |
|---|---|---|---|---|
| 5 | $90.57 | $86.26 | $82.19 | $78.35 |
| 10 | $82.03 | $74.41 | $67.56 | $61.39 |
| 20 | $67.30 | $55.37 | $45.64 | $37.69 |
| 30 | $55.21 | $41.20 | $30.83 | $23.14 |
At 3% inflation, your $100 buys only $55 worth of goods in 20 years.
Real Returns vs. Nominal Returns
When evaluating investments, always consider real (inflation-adjusted) returns. A savings account earning 2% while inflation is 3% means you are losing 1% in purchasing power every year. The stock market's historical nominal return of about 10% translates to roughly 7% in real terms.
Real Return = Nominal Return - Inflation Rate
10% market return - 3% inflation = 7% real return
Inflation Hedges: Protecting Your Wealth
TIPS (Treasury Inflation-Protected Securities)
- Principal adjusts with CPI
- Backed by US government
- Available in 5, 10, 30-year terms
- Best for: Conservative investors
I-Bonds (Series I Savings Bonds)
- Rate adjusts with inflation every 6 months
- Tax-deferred, state tax-free
- $10,000 annual purchase limit
- Best for: Safe inflation hedge
Commodities & Real Estate
- Physical assets tend to rise with inflation
- Real estate provides rental income + appreciation
- Gold is a traditional inflation hedge
- REITs offer real estate exposure in a portfolio
Stocks & Equities
- Companies can raise prices with inflation
- Historically outpace inflation long-term
- Dividend growers provide rising income
- Best long-term inflation hedge overall
The Rule of 72 Applied to Inflation
The Rule of 72 works for inflation too. Divide 72 by the inflation rate to see how many years it takes for prices to double. At 3% inflation, prices double in 24 years (72 / 3 = 24). At 6% inflation, prices double in just 12 years. This rule helps you quickly estimate how fast your purchasing power is shrinking.
Low Inflation
72 / 2 = 36 years for prices to double
Moderate Inflation
72 / 3 = 24 years for prices to double
High Inflation
72 / 5 = 14.4 years for prices to double
Very High Inflation
72 / 7 = 10.3 years for prices to double
Frequently Asked Questions
The Federal Reserve targets 2% annual inflation as ideal for economic growth. Over the past century, US inflation has averaged about 3% per year. Rates between 1-3% are considered normal and healthy. Anything above 5% is considered high, and sustained double-digit inflation is a serious economic problem.
Inflation reduces the real value of your returns. If your portfolio earns 8% but inflation is 3%, your real return is only 5%. Cash and low-yield bonds are hurt most by inflation. Stocks, real estate, and commodities tend to keep pace with or outpace inflation over the long term, making them essential for preserving purchasing power.
Historically, stocks have been the best inflation hedge, returning about 7% after inflation. Real estate, TIPS, I-Bonds, and commodities also tend to outpace inflation. A diversified portfolio with exposure to equities and real assets provides the strongest long-term protection against rising prices.
TIPS (Treasury Inflation-Protected Securities) are US government bonds whose principal adjusts with inflation as measured by CPI. I-Bonds (Series I Savings Bonds) are savings bonds with an interest rate that adjusts every 6 months based on inflation. Both are backed by the US government and provide built-in inflation protection. I-Bonds have a $10,000 annual purchase limit per person.
