What is inflation and how is it measured?

Inflation is the rate at which the general level of prices for goods and services rises, causing purchasing power to fall. In the US, inflation is primarily measured by the Consumer Price Index (CPI), published monthly by the Bureau of Labor Statistics. The CPI tracks the average change in prices paid by urban consumers for a basket of goods and services.

What is the average US inflation rate?

The average annual US inflation rate has been approximately 3.1% since 1913, when the Bureau of Labor Statistics began tracking CPI data. However, inflation varies significantly by decade — from near zero during the Great Depression to over 13% during the 1970s energy crisis. The Federal Reserve targets a 2% annual inflation rate.

How does inflation affect my savings?

Inflation erodes the purchasing power of money over time. If your savings earn less interest than the inflation rate, you are effectively losing money in real terms. For example, at 3% annual inflation, $100 today would only buy about $74 worth of goods in 10 years. This is why investing in assets that outpace inflation is important for long-term financial planning.

What is the CPI and how is it used?

The Consumer Price Index (CPI) measures the average change in prices paid by urban consumers for a representative basket of goods and services. It is used to adjust wages, pensions, tax brackets, and Social Security benefits for inflation. The CPI-U (all urban consumers) is the most widely cited measure and covers about 93% of the US population.

Inflation Calculator

See how the purchasing power of the US dollar has changed over time using historical CPI data.

Amount ($)

Start Year

End Year

Adjusted Amount

Cumulative Inflation 0% Avg. Annual Rate 0% Dollar Value Change $0

Understanding Inflation and Purchasing Power

Inflation is the gradual increase in prices that reduces the purchasing power of money over time. When inflation is positive, each dollar buys fewer goods and services than it did before. The US Bureau of Labor Statistics measures inflation through the Consumer Price Index (CPI), which tracks the average price change of a representative basket of consumer goods and services. This calculator uses historical annual average CPI data from 1913 to the present to show how the value of the US dollar has changed.

How the Calculation Works

The inflation-adjusted value is calculated by multiplying the original amount by the ratio of CPI values: Adjusted Amount = Original Amount × (End Year CPI / Start Year CPI). The cumulative inflation rate is the total percentage change between the two years, while the average annual rate is the compound annual growth rate (CAGR) of prices over the period.

Historical Context

Since 1913, cumulative inflation in the United States has exceeded 2,800%, meaning goods that cost $1 in 1913 would cost over $29 today. The highest peacetime inflation occurred in the late 1970s and early 1980s, driven by energy crises and monetary policy. The Federal Reserve now targets a 2% annual inflation rate as consistent with price stability and maximum employment.

Use this calculator to understand how inflation has affected wages, prices, and savings over any period. The line chart shows how the CPI has changed between your selected years, providing visual context for the rate of price increases.

Formula

Adjusted Amount = Original Amount × (End Year CPI / Start Year CPI)

Where:

CPI = Consumer Price Index (annual average for the given year)
Cumulative Inflation Rate = ((End CPI − Start CPI) / Start CPI) × 100%
Average Annual Rate = ((End CPI / Start CPI)^1/years − 1) × 100%

Example Calculation

Scenario: What is $100 from the year 2000 worth in 2023 dollars?

Step 1: CPI in 2000 = 172.2, CPI in 2023 = 304.7
Step 2: Adjusted Amount = $100 × (304.7 / 172.2) = $176.95
Step 3: Cumulative inflation = ((304.7 − 172.2) / 172.2) × 100% = 76.95%
Result: $100 in 2000 has the same purchasing power as $176.95 in 2023 | Average annual inflation = 2.51%

This calculator is for informational purposes only and does not constitute financial, tax, or legal advice. CPI data is approximate and based on annual averages. Always consult a qualified professional for decisions specific to your situation.