Inflation Calculator

Prices go up over time. Inflation measures how fast. In the US, the Bureau of Labor Statistics tracks prices on about 80,000 items through the Consumer Price Index (CPI). When you hear "inflation is 3%," it means that basket of goods costs 3% more than last year. "Core inflation" strips out food and energy because those prices jump around too much to be useful for trends. The Fed aims for 2% — enough to keep the economy moving, not enough to wreck people's savings.

About 3.1% per year in the US since 1913. But it varies wildly by decade: the 2010s averaged just 1.8%, while 2022 hit 9.1% at its peak. The 1970s-80s saw double-digit inflation. For planning purposes, 2.5-3% is a reasonable long-term assumption. If someone tells you to plan for 1.5%, they're being optimistic. If they say 5%, they're being pessimistic. 3% is the boring middle ground that's usually closest to right.

If your savings account earns 2% and inflation is 3%, you're losing 1% of purchasing power per year. The balance goes up, but what it can buy goes down. That's why keeping large amounts in a low-interest savings account is actually risky over the long term — you're guaranteed to lose value. Stocks (7-10% historically), real estate, I-Bonds, and TIPS are all designed to outpace inflation. Cash sitting in a 0.01% account is not.

2.5-3% for general expenses is the safe default. But not everything inflates equally. Healthcare: use 5-6% (it consistently outpaces general inflation). College tuition: 4-6% (it's inflated at roughly double the general rate for decades). Technology: actually deflates — your next laptop will be better and cheaper. If you're planning for retirement, healthcare inflation is the one that'll hurt the most.

The proven options, ranked by how practical they are: (1) Index funds — 7-10% average annual returns, minimal effort. (2) Real estate — property values and rents tend to track or beat inflation. (3) I-Bonds — US Treasury bonds that adjust with CPI, up to $10,000/year per person, basically zero risk. (4) TIPS — Treasury bonds with inflation-adjusted principal. (5) High-yield savings accounts — at 4-5% they at least keep pace. The worst option: a pile of cash in a checking account earning 0.01%.

This is the part people forget. You need $60,000/year to live comfortably today. At 3% inflation, you'll need $80,600 in 10 years and $108,400 in 20 years for the exact same lifestyle. Your retirement number isn't what you need today — it's what you'll need in future dollars. That's why financial planners use real (after-inflation) returns instead of nominal returns: plan with 4% instead of 7%, and you won't be shocked when $1 million doesn't go as far as you expected.

Because deflation (prices going down) is actually worse. Sounds nice in theory — stuff gets cheaper! But when prices fall, people delay purchases ("I'll buy it next month when it's cheaper"), businesses cut production and jobs, which means less income, which means less spending, which means prices fall further. It's a spiral that's very hard to escape. Japan spent decades dealing with it. The 2% target gives the economy a small upward push and gives central banks room to cut interest rates during recessions. Zero inflation leaves them with no tools when things go wrong.