What Inflation Is and How It Is Measured
Inflation is the general increase in the prices of goods and services over time. The same dollar buys less than it did before, so inflation is also described as a loss of purchasing power.
In the United States the most common gauge is the Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the Bureau of Labor Statistics. It tracks the average price of a basket of things households buy, such as food, housing, transportation, medical care and clothing, and sets a base period equal to 100. If the index goes from 168.8 to 257.971, prices have risen by the ratio of the two numbers.
The key formula is: value in a later year = amount × CPI later ÷ CPI earlier.
👉 Convert any amount between months since 1913 with our free inflation calculator →
What Money from the Past Is Worth Today
These examples use the monthly CPI-U and fixed past dates, so they do not change:
| From | To | Amount | Equivalent Value | Total Inflation | Average per Year |
|---|---|---|---|---|---|
| Jan 1913 | Jan 2026 | $100 | $3,318.90 | 3,218.9% | 3.15% |
| Jan 1980 | Jan 2000 | $100 | $216.97 | 117.0% | 3.95% |
| Jan 1990 | Jan 2020 | $1,000 | $2,024.89 | 102.5% | 2.38% |
| Jan 2000 | Jan 2020 | $1,000 | $1,528.26 | 52.8% | 2.14% |
| Jan 2010 | Jan 2020 | $1,000 | $1,190.52 | 19.1% | 1.76% |
| Jan 2020 | Jan 2025 | $1,000 | $1,231.42 | 23.1% | 4.25% |
Swipe sideways to see all columns. Look at the last two rows: prices rose 19% in the whole decade 2010 to 2020, and then 23% in just five years from 2020 to 2025. A "normal" decade can be followed by a short period that changes what a dollar buys.
In reverse, the same math says what your old money actually buys now. $1,000 in January 2000 bought what $654.34 of 2000 dollars bought, a loss of 34.6% of its purchasing power by 2020.
Recent Years: Annual Average Inflation
The change in the yearly average of the CPI-U from one year to the next:
| Year | Inflation (Annual Average vs. Previous Year) |
|---|---|
| 2020 | 1.2% |
| 2021 | 4.7% |
| 2022 | 8.0% |
| 2023 | 4.1% |
| 2024 | 3.0% |
| 2025 | 2.6% |
Inflation was low in 2020, jumped in 2021 and peaked in 2022 before easing. These are annual averages: figures that compare one month with the same month a year earlier, which are often quoted in the news, can differ.
Looking Forward: What 2%, 3% and 4% Do
The Federal Reserve targets about 2% inflation over the long run, under its mandate from Congress to promote stable prices and maximum employment. Even at that pace, the effect builds:
| Yearly Inflation | After | Prices Multiply By | You Need to Match $1,000 Today | $1,000 Buys the Equivalent of |
|---|---|---|---|---|
| 2% | 10 years | 1.22 | $1,218.99 | $820.35 |
| 2% | 20 years | 1.49 | $1,485.95 | $672.97 |
| 3% | 10 years | 1.34 | $1,343.92 | $744.09 |
| 3% | 20 years | 1.81 | $1,806.11 | $553.68 |
| 3% | 30 years | 2.43 | $2,427.26 | $411.99 |
| 4% | 10 years | 1.48 | $1,480.24 | $675.56 |
| 4% | 30 years | 3.24 | $3,243.40 | $308.32 |
At 3%, something that costs $1,000 today costs about $1,806 in 20 years, and cash kept untouched loses almost half its buying power. Rule of 72: dividing 72 by the inflation rate gives the years for prices to double, 24 years at 3%.
Why Inflation Matters for Your Money
Savings must beat inflation to grow in real terms
What counts is the real return: your interest rate compared with inflation. A 4% savings account with 3% inflation grows your buying power by about 1% a year, while a 2% account with 3% inflation loses about 1% a year even though the balance rises. Over 10 years, $50,000 in cash earning nothing with 3% inflation has the buying power of about $37,205, while the same money earning 4% is worth about $55,072 in today's dollars. See how savings grow in our compound interest guide.
Raises need to keep up
A $60,000 salary in January 2015 would have needed to become about $81,556 by January 2025, a 35.9% raise, just to buy the same things. A raise smaller than inflation is a pay cut in real terms.
Long-term goals must be adjusted
A retirement or college goal stated in today's dollars needs to be higher in the future. Plan with an inflation assumption, and test a few rates. For retirement income, see our guide on when to claim Social Security.
Debt can work the other way
If your income rises with inflation and you owe a fixed-rate loan, the real burden of the payment shrinks over time. That does not make borrowing free, since interest rates also respond to inflation.
How People Protect Against Inflation
- Invest for growth. Over long periods, stocks have historically outpaced inflation, with large swings along the way. See our ETF and index fund calculator.
- Treasury Inflation-Protected Securities (TIPS) and Series I savings bonds adjust with the CPI, so their value tracks price increases.
- Keep emergency cash in an account that pays interest, not under the mattress.
- Lock in fixed rates on loans when rates are low relative to inflation.
- Increase your income through raises and skills, and review fixed costs regularly.
Government programs also adjust for inflation: Social Security benefits rise each year with a cost-of-living adjustment, and the income tax brackets and standard deduction are updated annually (see the 2026 federal tax brackets).
Frequently Asked Questions
How is inflation calculated?
By comparing the CPI at two dates. The inflation rate is the CPI later divided by the CPI earlier, minus one. Over several years, the average yearly rate is that ratio raised to the power of one divided by the number of years, minus one.
What is the difference between CPI and the inflation rate?
The CPI is an index level, like 257.971. The inflation rate is the percentage change in that index over a period.
What inflation rate should I use to plan?
Many planners use 2% to 3%. Actual inflation has ranged from under 1% to about 8% in recent years, so test a few rates and see how sensitive your plan is.
Does the CPI reflect my own inflation?
Not exactly. It is an average for urban households. If you spend more than average on housing, healthcare or education, your personal inflation may be higher or lower than the CPI.
What is deflation?
A fall in the general price level. It is rare and often linked to recessions. In the early 1930s the CPI dropped by about a quarter, and $100 of goods cost about $75 a few years later.
Conclusion & Recommended Next Steps
Inflation is slow and steady, so it is easy to ignore until you compare prices across years. Use the calculator to see what any amount from the past is worth today, and to project what you will need in the future. Check that your savings, your investments and your raises are earning more than inflation.
Inflation Calculator
Convert dollars between any two months since 1913.
Compound Interest Calculator
See if your savings are growing faster than prices.
ETF & Index Fund Calculator
Project growth and see the result in today's dollars.
Savings Goal Calculator
Set a goal that accounts for rising prices.
Disclaimer: This guide is intended solely for educational and informational purposes and does not constitute personalized financial, investment, legal, or tax advice. Historical inflation figures come from the Bureau of Labor Statistics CPI-U (not seasonally adjusted); future inflation is uncertain, and the projections above are illustrations based on stated assumptions. Consult a qualified financial professional before making decisions.