Affiliate disclosure: This page contains affiliate links. We may earn a commission if you click through and take action, at no extra cost to you. Learn more.
Inflation Calculator
See how inflation erodes your purchasing power over time, and what today's dollars will be worth in the future.
Sources & Methodology
By Sean Baldwin · Last reviewed July 2026
Frequently Asked Questions
What is inflation?
Inflation is the rate at which the general price level of goods and services rises over time, reducing purchasing power. The Bureau of Labor Statistics measures it via the Consumer Price Index (CPI), which tracks roughly 80,000 goods and services monthly. If inflation is 3% and you have $10,000 earning 0.5%, your money buys about 2.5% less each year. Your personal inflation rate also differs from the headline CPI based on your spending mix, renters and homeowners experience housing costs very differently, and those with heavy healthcare or education expenses typically face above-average inflation regardless of the published number.
What is the average US inflation rate?
Historically, the US inflation rate has averaged around 3% per year since 1913, but this masks wide variation across decades. The 1970s saw double-digit inflation peaking at 13.5%. The 2010s averaged under 2%. During 2021–2023, inflation spiked to 7–9% due to supply chain disruptions, fiscal stimulus, and pandemic-era demand shifts. The Federal Reserve targets 2% annually using the PCE index. For long-term planning, 3% is a reasonable baseline assumption, though your actual experienced rate depends heavily on your specific spending mix, particularly housing, healthcare, and transportation.
How does inflation affect my savings?
If your savings earn less than the inflation rate, you lose purchasing power even as the nominal balance grows. The real return formula is approximately: real return = nominal return − inflation rate. A $10,000 account earning 0.5% while inflation runs at 3% loses roughly $250 in real value each year. Over 20 years, that account nominally grows to about $11,050 but only buys what $6,700 buys today. This gap is why financial planners consistently warn against holding large cash reserves long-term, nominal growth masks real-term wealth erosion that compounds quietly over decades.
What is the best way to beat inflation?
The most reliable long-term inflation hedge is equity investment: the S&P 500 has returned approximately 10% annually (around 7% after inflation) over the long run. For money you can't risk on stocks, high-yield savings accounts (4–5% APY at online banks in 2026), I-Bonds (Treasury bonds with built-in inflation adjustments, limited to $10,000/year per person), and TIPS (Treasury Inflation-Protected Securities) all help reduce the real-value gap. The key principle: any money sitting in a low-yield savings account for years is slowly being eroded in real terms, even if the nominal number is growing steadily.
How do I calculate inflation between two years?
The formula is: Adjusted Value = Original Amount × (1 + annual rate)^years. For $1,000 in 2000 at 3% through 2026: $1,000 × (1.03)^26 ≈ $2,157. For historical data, the Bureau of Labor Statistics CPI Inflation Calculator uses actual recorded CPI figures rather than assuming a constant rate. To annualize a multi-year inflation figure yourself: divide ending CPI by starting CPI, raise the result to the power of (1 ÷ years), then subtract 1. This gives the compound annual inflation rate for any period, more accurate than simple averaging for longer time spans.
Why does the Fed target 2% inflation instead of zero?
The Federal Reserve targets 2% annual inflation rather than zero for deliberate reasons. A small positive inflation rate discourages hoarding cash (since cash slowly loses value), gives the Fed room to cut interest rates during recessions, and provides a buffer against deflation, which is more economically damaging than mild inflation. Japan's decades of near-zero inflation and periodic deflation are the cautionary case study: consumers and businesses delayed purchases expecting lower prices, creating prolonged economic stagnation. The 2% target is a carefully calibrated policy choice. Practically, your savings and investments need to return more than 2% annually just to break even in real terms.
What is the difference between CPI and PCE inflation?
CPI (Consumer Price Index) measures a fixed basket of goods and services typical consumers buy. PCE (Personal Consumption Expenditures Price Index) is the Federal Reserve's preferred measure, it adjusts for substitution behavior (if beef prices rise, consumers buy more chicken), covers a broader set of expenditures, and weights healthcare differently. PCE typically reads 0.3–0.5 percentage points lower than CPI. When news reports mention the Fed's 2% inflation target, that refers to the PCE measure, not CPI. For personal financial planning, CPI is the more commonly cited benchmark, but both measures tell a similar directional story over long time horizons.
How does inflation affect retirement planning?
Inflation is arguably the largest long-term risk in retirement planning, often more significant than market volatility over 20–30 year horizons. At 3% annual inflation, $1 of purchasing power today is worth $0.55 in 20 years and $0.41 in 30 years. A retiree spending $5,000/month at age 65 will need roughly $9,000/month by age 85 just to maintain the same lifestyle. This is why financial planners recommend retirement portfolios continue holding equities even in retirement, and why inflation-adjusted annuities and TIPS ladders are often recommended for the fixed-income portion of a retirement portfolio.
How inflation silently erodes your purchasing power
Inflation at 3% per year sounds modest, but it means prices double every 24 years. A grocery cart that costs $150 today will cost $300 in 2049 at that rate. More immediately relevant: $10,000 sitting in a savings account earning 0.5% while inflation runs at 3% loses approximately $250 in real purchasing power each year. After 10 years, that $10,000 only buys what $7,440 buys today, even though the nominal balance has grown to $10,511. This is why financial planners consistently emphasize that holding large amounts of cash long-term is itself a financial risk. Money that isn't growing at least as fast as inflation is shrinking in real terms. The distinction between nominal returns (the number in your account) and real returns (adjusted for inflation) is the most important concept in long-term financial planning.
Why the 2021–2023 inflation spike was so damaging
The US experienced its highest inflation in 40 years during 2021–2023, peaking at 9.1% in June 2022. At that rate, prices rose 9.1% in a single year, far outpacing wage growth, savings account rates (averaging 0.3–0.5% at traditional banks), and most fixed-income investments. Workers who received a 4% raise in 2022 effectively took a 5% pay cut in real terms. The spike was driven by three converging forces: pandemic-era supply chain disruptions reducing the supply of goods, unprecedented fiscal stimulus increasing the money supply, and pandemic-driven demand shifts (from services to goods) straining specific sectors. The Federal Reserve raised interest rates aggressively, from near zero to 5.25–5.5%, to bring inflation back toward its 2% target.
How to protect your money against inflation
The most effective long-term inflation hedge is stock market investment. The S&P 500 has returned approximately 10% annually (7% after inflation) over the long term, comfortably outpacing inflation in most periods. For money you can't afford to expose to stock market volatility (emergency fund, near-term expenses), high-yield savings accounts (currently 4–5% APY at online banks), short-term Treasury securities, and I-Bonds offer better inflation protection than traditional savings accounts. I-Bonds issued by the US Treasury pay a composite rate that includes a fixed component plus an inflation adjustment, they're explicitly designed to preserve purchasing power. The downside: I-Bond purchases are limited to $10,000/year per person, and money is locked for 12 months.
Understanding the Fed's 2% inflation target
The Federal Reserve targets 2% annual inflation rather than zero for deliberate reasons. A small positive inflation rate creates incentives to spend and invest now rather than hoard cash (since cash loses value over time), provides a buffer against deflation (which is economically more damaging than mild inflation), and gives the Fed room to cut interest rates in downturns. Zero or negative inflation (deflation) tends to cause consumers and businesses to delay purchases and investment, creating economic contraction spirals. The 2% target is a carefully calibrated policy choice, not an accident. For practical planning: your savings and investments need to return more than 2% annually just to break even in real terms, and more than your actual experienced inflation rate to build real wealth.
Related Calculators
Further Reading
How We Calculate Your Score
This calculator does not produce a Worth It Score — it is a calculation tool, not a recommendation engine. It answers two questions: (1) what is a past dollar amount worth in today's dollars, and (2) what will today's dollar amount be worth in a future year? Both use the U.S. Bureau of Labor Statistics CPI-U index, the official measure of consumer price inflation.
- · Past-to-present: adjusted value = original amount × (current CPI ÷ historical CPI)
- · Present-to-future: projected value = current amount × (1 + annual inflation rate)^years
- · Default inflation rate: 3% per year (the approximate long-run U.S. average including the 2021–2023 spike period)
- · CPI data source: BLS CPI-U series, updated monthly
Inflation varies significantly by time period and spending category. Housing and healthcare have historically inflated faster than the CPI average; electronics and clothing slower. For retirement planning, use your personal inflation rate — what you actually spend on — rather than the headline CPI.
Cite this calculator: Worth It Calculators, "What Is Your Money Really Worth After Inflation? Find Out (2026)," worthitcalculators.com/inflation-calculator/ (updated July 2026).