Inflation is the general rise in prices over time, which reduces the purchasing power of money. At 3% inflation, what costs $100 today will cost $103 next year. Over 24 years at 3%, prices roughly double (Rule of 72: 72 ÷ 3 = 24 years).

What is the US historical inflation rate?

The US long-run average inflation rate is approximately 3% per year. The Federal Reserve targets 2% inflation. In 2021–2022, inflation spiked to 7–9% due to post-pandemic supply chain disruptions and fiscal stimulus, before declining back toward 3% by 2024.

What is real vs. nominal return?

Nominal return is the stated investment return without accounting for inflation. Real return = Nominal return − Inflation rate. A 10% nominal return during 4% inflation equals a ~6% real return. Real return is what actually matters for building wealth.

How do I protect against inflation?

Invest in assets that historically outpace inflation: stocks (7–10% nominal), real estate, commodities, I-bonds (inflation-indexed), TIPS (Treasury Inflation-Protected Securities). Cash and fixed-rate bonds lose purchasing power over time.

Inflation Calculator

Calculate how inflation erodes purchasing power over time. Find out what today's dollars will be worth in the future, or what a past amount would equal in today's money. Includes a year-by-year purchasing power table.

Inflation Results

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Understanding Inflation

Inflation reduces what your money can buy over time. At a 3% annual rate — the US long-term average — prices double roughly every 24 years. At 7% inflation (2022 peak), prices double in just 10 years.

Real vs. Nominal Values

Nominal values are stated in current dollars. Real values are adjusted for inflation to reflect actual purchasing power. When evaluating investments, always compare real returns — if your savings earn 2% but inflation is 3%, you're losing purchasing power.

Historical US Inflation Rates

1970s: 5–13% (oil crisis era)
1980s–2000s: 2–5% (Federal Reserve stabilization)
2010–2020: 1–2% (low inflation decade)
2021–2022: 7–9% (post-pandemic spike)
2023–2024: 3–4% (gradual decline)

Frequently Asked Questions

How does inflation affect savings?

Inflation erodes the real value of cash savings over time. If your savings account earns 2% interest and inflation runs at 3%, your real purchasing power shrinks by 1% per year. After 20 years at that gap, your money buys roughly 18% less than it does today even though the nominal balance grew. This is why keeping large sums in low-yield accounts long-term is financially costly.

What is the Federal Reserve's inflation target?

The Federal Reserve targets 2% annual inflation as measured by the PCE (Personal Consumption Expenditures) price index. This level is considered low enough to protect purchasing power while providing enough buffer to avoid deflation, which can be economically damaging by causing consumers to delay purchases.

What is the difference between CPI and PCE?

CPI (Consumer Price Index) tracks prices paid by urban consumers for a fixed basket of goods. PCE (Personal Consumption Expenditures) tracks what consumers actually spend and adjusts for substitution behavior. The Fed prefers PCE; CPI tends to run slightly higher. Both are published monthly by government agencies and are widely used inflation benchmarks.

How does inflation affect investments?

Inflation hurts fixed-income investments most — a bond paying 3% interest loses real value when inflation runs at 4%. Equities historically outpace inflation over long periods because companies can raise prices. Real assets like real estate and commodities often serve as inflation hedges. TIPS (Treasury Inflation-Protected Securities) are bonds whose principal adjusts with CPI.