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Calculate the buying power of money over time and see the effects of inflation on your savings based on historical CPI data.
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3.4%
Average US inflation since 1913 (Federal Reserve)
$1,000
Worth ~$2,361 today — $1,000 from 1990 (purchasing power loss)
40-yr high
US CPI peaked at 9.1% in June 2022, highest since 1981
CPI
Consumer Price Index: the primary inflation measure since 1913
Inflation is the rate at which the general level of prices for goods and services rises over time, causing each unit of currency to buy fewer goods and services — a phenomenon known as purchasing power erosion. In practical terms, if inflation is 3% annually, a $100 basket of groceries today will cost $103 next year.
Economists identify three primary types of inflation: demand-pull inflation occurs when consumer demand outstrips supply (too many dollars chasing too few goods); cost-push inflation arises when production costs rise (energy prices, wages, raw materials), forcing businesses to raise prices; and built-in inflation (wage-price spiral) occurs when workers demand higher wages because they expect higher prices, which in turn raises production costs.
Central banks worldwide — including the US Federal Reserve — target a 2% annual inflation rate as optimal. Modest inflation encourages consumer spending (people buy now rather than wait for lower prices), stimulates borrowing and investment, and gives monetary policy room to cut rates during recessions. Too little inflation risks deflation; too much erodes savings and creates economic uncertainty.
Inflation Rate = ((CPI_current − CPI_base) ÷ CPI_base) × 100Measures the percentage change in price level between two periods using the Consumer Price Index.
Adjusted Value = Original Amount × (CPI_end ÷ CPI_start)Converts a dollar amount from one year to its equivalent purchasing power in another year.
Real Return = ((1 + Nominal Rate) ÷ (1 + Inflation Rate)) − 1The Fisher equation: calculates the true return on an investment after inflation is factored out.
| Category | CPI Weight | 2022 Peak | 2024 Rate | Investment Hedge |
|---|---|---|---|---|
| Housing (Shelter) | 34.4% | +8.2% | +5.6% | Real Estate, REITs |
| Food (at home) | 8.5% | +13.5% | +1.2% | Commodities |
| Energy | 6.9% | +41.6% | −2.0% | Energy ETFs, Oil stocks |
| Medical Care | 6.2% | +6.5% | +3.3% | Healthcare stocks |
| Transportation | 5.6% | +11.2% | +7.8% | None reliable |
| Core CPI (ex-food/energy) | 78.6% | +6.6% | +3.9% | TIPS, I-Bonds |
Federal Reserve Act establishes the Fed; CPI tracking begins formally. The dollar’s inflation journey starts here.
Bretton Woods system pegs the dollar to gold at $35/oz; limits inflation by anchoring currency value internationally.
Nixon ends gold standard (Nixon Shock); dollar becomes a fiat currency, removing the hard constraint on money supply.
US inflation peaks at 14.5% under Carter. Fed Chair Paul Volcker raises the federal funds rate to 20%, triggering a recession but breaking the inflation spiral.
Financial crisis causes deflation fears. The Fed begins quantitative easing (QE) — buying bonds to inject liquidity and prevent deflationary collapse.
Post-pandemic supply shocks combined with $5 trillion in COVID stimulus push CPI to 9.1% — the highest since 1981. Fed hikes rates 11 times to 5.25–5.5%.
Federal Reserve Bank of Minneapolis
The average annual US inflation rate since 1913 is 3.1%. The longest deflationary period lasted from 1926–1933 (Great Depression).
View Source →BLS Consumer Price Index
The Bureau of Labor Statistics measures CPI monthly across 8 major categories and 211 items. The 2022 peak of 9.1% was driven primarily by energy (+41.6%) and food (+10.4%).
View Source →TreasuryDirect I-Bonds & TIPS
I-Bonds earned 9.62% (May 2022) as inflation peaked — the highest rate in the program’s history. TIPS automatically adjust principal with CPI.
View Source →Inflation is always bad for everyone
Homeowners benefit from inflation — their fixed mortgage payment decreases in real terms while home values and rents rise. Debtors with fixed-rate loans also benefit as they repay with “cheaper” dollars.
A little inflation means prices will go back down
Deflation (falling prices) is rarer and often more dangerous than inflation. The Great Depression was characterized by deflation. Central banks target 2% inflation precisely because modest inflation stimulates spending and economic growth.
Cash savings protect you from inflation
Cash savings lose purchasing power during inflation. $10,000 in a 0.5% savings account loses ~2.5% of real value per year at 3% inflation. I-Bonds, TIPS, real estate, and diversified equities have historically outpaced inflation.
The government can just print money to fix economic problems
Excessive money printing directly causes inflation — as more dollars chase the same goods, prices rise. The Weimar Republic (1920s Germany), Zimbabwe (2008), and Venezuela (2018) all experienced hyperinflation from money printing.
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