Inflation Calculator

The CPI (Consumer Price Index) measures the average change in prices paid by urban consumers for a basket of goods and services. It tracks housing, food, transportation, medical care, recreation, and more. The US Bureau of Labor Statistics (BLS) publishes CPI monthly. CPI-U (all urban consumers) covers ~93% of the US population. Inflation rate = (CPI_current − CPI_past) / CPI_past × 100%. The Fed targets 2% annual inflation for economic stability. High inflation erodes purchasing power; deflation can cause economic stagnation.

Purchasing power = Amount × (CPI_end / CPI_start). Example: $1,000 in 1990, CPI 1990 = 130.7, CPI 2020 = 258.8 → $1,000 × (258.8/130.7) = $1,980 in 2020 terms. This means you'd need $1,980 in 2020 to buy what $1,000 bought in 1990. Alternatively, $1,000 in 2020 had the same purchasing power as $1,000 × (130.7/258.8) = $505 in 1990. Real value = Nominal value / (CPI / base CPI). This is why "a dollar doesn't go as far as it used to."

Main causes: Demand-pull inflation: too much money chasing too few goods (high consumer demand, loose monetary policy). Cost-push inflation: production costs rise (oil prices, wages, supply chain disruptions). Built-in inflation: wage-price spiral — workers demand higher wages → businesses raise prices → workers demand more wages. Monetary inflation: excessive money supply growth (quantitative easing, printing money). Supply shocks: sudden reduction in supply (pandemic, war). Historical examples: 1970s oil crisis: ~10% US inflation. 2021–2022: post-pandemic supply chain disruptions → 8–9% peak inflation.

Real return = Nominal return − Inflation rate (Fisher approximation). Example: savings account at 2% APY with 3% inflation → real return = −1% (losing purchasing power). US stocks historically return ~10% nominal, ~7% real. Inflation-protected investments: TIPS (Treasury Inflation-Protected Securities) — principal adjusts with CPI. Real estate — prices generally track inflation. Commodities (gold, oil) — often rise with inflation. Cash and fixed-rate bonds lose real value during high inflation. Rule of thumb: any investment earning less than inflation rate is losing you money in real terms.

The Rule of 70 estimates how many years it takes for prices to double at a given inflation rate: Years to double = 70 / inflation rate. At 2% inflation: 70/2 = 35 years to double prices. At 7% inflation: 70/7 = 10 years. At 10% inflation: 70/10 = 7 years. Equivalently, purchasing power halves in the same timeframe. Example: at 3% average inflation, $1,000 today will have the buying power of $500 in about 23 years. The Rule of 70 is a quick mental math shortcut (similar to the Rule of 72 for investments).