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Simply enter the amount of money, initial year, and the final year to see the impact of inflation. You can choose years in the future. This calculator will calculate the inflation from the past to the future and from the future to the past.
Data between 1913 and today are from the U.S. Bureau of Labor Statistics' Consumer Price Index (CPI). You can set the inflation rate for years prior to 1913 and for future years. Given that the historical inflation in the U.S. between 1913 and 2019 was 3.1%, we recommend using a similar rate.
How does the inflation calculator work?
The inflation calculator measures the purchasing power of the U.S. dollar over time based changes in the Consumer Price Index (CPI).
What is inflation?
Inflation is the decline in the purchasing power of the dollar. When there is inflation, the items that your dollar can buy decreases. You need more money to buy the same things.
For example, you have a dollar. You go to the store to buy an apple which costs $1.00. After some time, as a result of inflation, the apple has doubled in price and now costs $2.00. The dollar you have now can only buy half an apple.
Protecting yourself against inflation
The hidden dangers of inflation
Inflation is a near certainty. While the U.S. has gone through periods of deflation, on average, inflation has increased by 3.1% per year historically. What does this mean? If hypothetically you are earning 4% in a savings account while inflation is growing at 3%, you are really earning around 1% in terms of real purchasing power.
There have also been times in U.S. history when the inflation rate was in the low teens. In this case, if you are earning say 4% in a savings account and inflation is 12%, then you are actually losing purchasing power by around 7-8%.
Let's look at an example.
You have $100 and you put this in a savings account earning 4%.
You are interested in buying a nice chair that also costs $100, but you decide to wait until next year.
Inflation is 12%.
After a year, you now have $104 in your savings account.
However, as a result of inflation, the chair now costs $112.
You are $8 short. This is the power and the danger of inflation.
Protection against inflation
So how can you protect yourself against inflation and make sure your hard-earned money does not lose its value over time?
Invest in stocks
Investing in the stock market could help combat rising inflation. While the historical inflation rate has been 3.1%, the average annual return of the S&P 500 has been 10% since 1926 and 8% since 1957. The S&P 500 is a stock market index that measures the performance of 500 large companies listed on U.S. stock exchanges and is a good representation of the U.S. stock market.
Investing in the stock market, whether that is through choosing individual stocks or buying a basket of stocks that track the stock market, such as ETFs, is one way to counter the negative impacts of inflation.
Buy inflation-protected bonds
Another way to protect yourself against inflation while avoiding the ups and downs of the stock market is to invest in inflation-protected bonds. The benefit of this is that you avoid potentially losing money in the stock market while still being protected against inflation. The disadvantage is that you miss out on gains in the stock market that are above the inflation rate.
The US Treasury offers Treasury Inflation-Protected Securities, also know as TIPS, for purchase. The principal of these securities increase with inflation (and decrease with deflation), as tracked by the Consumer Price Index.
Open a savings account
At minimum, your money should be sitting in a savings account that is earning interest. After all, even a small interest rate is better than no interest rate, which is what happens if your money is being stored in a checking account.
How to calculate the inflation rate
The inflation rate is calculated by the U.S. Bureau of Labor Statistics (BLS), which constructs the Consumer Price Index, or CPI.
The CPI measures the cost of purchasing a bundle of items for daily living such as cereal, milk, win, furniture, jewelry, clothing, and more. This index is adjusted over time to account for changes in what people tend to buy in their daily lives.
The inflation rate is defined as the percentage change in the Consumer Price Index. The CPI index number does not matter - what matters is the change in the CPI.
Let's look at an example. How much money would you need in 2019 to buy an item that cost $100 in 1990?
We need to know what the CPI index was in 2019 and 1990.
CPI Index in 2019: 255.657
CPI Index in 1990: 130.7
The formula to calculate the price of a good from one year to another is:
Historical and current US inflation rates
The historical inflation in the U.S. from 1913 to 2019 was 3.1% per year.