Inflation Calculator - Free Purchasing Power Calculator with Historical Inflation Data and Investment Recommendations
Inflation Calculator
Calculate how much money loses value over time
Starting amount (in start year)
Year when you had this amount
Target year for comparison
Average annual inflation rate (U.S. avg: ~3.3%)
Ready to Calculate Inflation Impact?
Enter your amount, time period, and inflation rate to see how purchasing power changes
Understand how inflation erodes money value and get investment recommendations
Understanding Inflation and Purchasing Power
What is Inflation?
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
Understanding inflation is crucial for financial planning. Even a low annual inflation rate can significantly erode the value of your savings and investments over time. This calculator helps you visualize that impact.
Types of Inflation
- Demand-Pull Inflation: Occurs when aggregate demand in an economy outpaces aggregate supply.
- Cost-Push Inflation: Occurs when the cost of producing goods and services rises, leading to higher prices.
- Built-In Inflation: Relates to adaptive expectations, where people expect current inflation rates to continue.
Protecting Your Wealth from Inflation
- Invest in Inflation-Protected Securities: Such as TIPS (Treasury Inflation-Protected Securities).
- Real Estate: Property values and rents tend to rise with inflation.
- Stocks: Historically, stocks have outperformed inflation over the long term, especially companies with pricing power.
- Commodities: Gold, silver, and other raw materials can serve as a hedge against inflation.
- Diversification: A well-diversified portfolio is key to mitigating risk.
Frequently Asked Questions
How much has inflation increased since 2000?
From 2000 to 2024, cumulative inflation is approximately 75-80% at 3% average annual rate. This means $10,000 in 2000 requires about $17,500-$18,000 today for equivalent purchasing power. Actual U.S. inflation (2000-2024) averaged 2.5-3%, resulting in 75% cumulative price increase.
What is a good inflation rate?
The Federal Reserve targets 2% annual inflation as optimal for economic growth. Rates below 0% (deflation) signal recession, while rates above 5% erode purchasing power rapidly. Historical U.S. average (1913-2024) is ~3.3%. Current 2-3% inflation is considered healthy and manageable.
How do I protect my money from inflation?
Best inflation hedges: 1) Stocks (average 10% return beats 3% inflation), 2) Real Estate (rents rise with inflation), 3) I-Bonds (rate adjusts with CPI every 6 months), 4) TIPS (Treasury Inflation-Protected Securities), 5) Commodities (gold, oil), 6) Dividend stocks (income grows). Keep only 3-6 months expenses in cash; invest the rest.
Why is inflation bad for savers?
Inflation reduces purchasing power of saved cash. At 3% inflation, money loses 50% of its value in 23 years. If savings account pays 1% but inflation is 3%, you lose 2% real value annually. Example: $10,000 saved at 1% for 10 years = $11,046. But with 3% inflation, real purchasing power = $8,226 (26% loss). Always invest long-term savings to outpace inflation.
What causes inflation?
Main causes: 1) Demand-pull inflation (demand exceeds supply), 2) Cost-push inflation (production costs rise), 3) Built-in inflation (wage-price spiral), 4) Monetary inflation (too much money printing). Recent examples: 2021-2022 inflation (supply chain issues + stimulus money + energy costs). Federal Reserve controls inflation through interest rates and money supply.
How is inflation calculated?
U.S. inflation measured by CPI (Consumer Price Index) from Bureau of Labor Statistics. CPI tracks prices of 80,000+ items in 8 categories: food, housing, transportation, medical care, education, clothing, recreation, and other goods/services. Formula: ((CPI Year 2 - CPI Year 1) / CPI Year 1) × 100. Released monthly; affects Social Security, tax brackets, and wages.
What is the difference between inflation and deflation?
Inflation = prices rise, money value falls (most common). Deflation = prices fall, money value rises (rare, often harmful). While deflation sounds good, it signals economic problems: job losses, business failures, debt burden increases. Japan experienced deflation (1990s-2010s) with lost decades of economic stagnation. Moderate inflation (2-3%) is healthier than deflation.
Should I invest differently during high inflation?
Yes. High inflation (>5%) strategy: 1) Reduce bonds (lose value in high inflation), 2) Increase stocks (companies raise prices), 3) Add commodities (gold, oil rise with inflation), 4) Invest in real assets (real estate, farmland), 5) Buy I-Bonds (government guarantee + inflation adjustment), 6) Consider inflation-linked ETFs. Low inflation (<2%): traditional 60/40 stocks/bonds works. Adjust allocation based on inflation outlook.