Inflation Calculator

Inflation is the gradual increase in the price level of goods and services over time — and the corresponding decrease in what a dollar can buy. Understanding inflation is essential for long-term financial planning, salary negotiations, and investment return evaluation.

The US Consumer Price Index (CPI), published monthly by the Bureau of Labor Statistics, is the most commonly used measure of inflation. It tracks the price of a "basket" of goods and services purchased by typical American households. When you hear "inflation was 3.4% last year," it means that basket costs 3.4% more than it did the previous year.

The practical impact of inflation is significant over long time horizons. At 3% annual inflation: $1,000 today has the purchasing power of $744 in 10 years, $554 in 20 years, and $412 in 30 years. This is why financial advisors say "keeping cash is not risk-free" — inflation erodes its purchasing power silently, at about 3% per year historically.

For salary comparisons across time: if you earned $50,000 in 2010 and earn $65,000 today, have you actually gotten a raise in real terms? This calculator shows you the inflation-adjusted purchasing power of any amount across any year range, so you can make accurate comparisons.

Investment returns must be evaluated in "real" (inflation-adjusted) terms. An investment returning 7% in a 3% inflation environment has a real return of about 4%. Historical US stock market returns average about 10% nominal — but only about 7% real. Bonds and savings accounts have at times provided negative real returns when inflation outpaced the interest rate.

The Federal Reserve targets 2% annual inflation as healthy for the economy. Deflation (negative inflation) is actually more dangerous than mild inflation — it causes people to delay purchases and leads to economic contraction.