Inflation Calculator

Inflation Calculator

Inflation is the rate at which the prices for goods and services go up over time. When inflation happens, each dollar buys less than before. The opposite occurs with deflation, which is a decline in prices. Both inflation and deflation affect the value of money and the overall economy. And for consumers and investors, if their money grows slower than inflation, the value of their savings and investments effectively decreases.

A financial advisor can help you create a financial plan that accounts for inflation. Speak with a financial advisor today.

Why Does Inflation Happen?

Inflation can happen for different reasons linked to supply and demand. To put it simply, prices go up when people want to buy more than what is available, or when it costs more to make and deliver goods. This idea is part of Keynesian economics, which looks at how spending and production affect prices.

Here are four common causes of inflation to keep in mind:

• Demand-pull inflation: This happens when people want to buy more than what businesses can supply. A recent example occurred after COVID-19, when the demand for goods went up, but supply chains were still slow, causing prices to increase.
• Cost-push inflation: This occurs when the costs of making or moving products goes up and businesses raise prices. One example happened in 1973 when oil prices rose sharply, making everything more expensive to produce and transport.
• Built-in inflation: This type of inflation happens when workers ask for more pay to cover higher prices and businesses raise prices to cover those wages. An example occurred in the 1970s when higher wages led to higher prices, which drove more wage demands.
• Monetary inflation: This occurs when there is too much money in the economy when compared with goods and services. As an example, a study from the Federal Reserve Bank of St. Louis suggested that stimulus checks during COVID-19 contributed to an increase of roughly 2.6% in inflation.

How Is the Inflation Rate Calculated?

To measure the inflation rate, you can't just take a single good and measure how its price changes. You have to look at what's called a "basket" of goods and services. In the U.S., inflation rates come from the Consumer Price Index (CPI). The CPI takes what the government considers a representative basket of goods and services, and records changes in their prices from month to month and year to year.

The Inflation Rate Formula

The formula for calculating inflation is as follows:

(Price Index Year 2 - Price Index Year 1) ÷ Price Index Year 1 x 100 = Inflation Rate

To calculate the inflation rate for a given year, the CPI helps, but it only goes as far back as 1913. If you want to find the historic inflation rate before then, analysts take a current price index and then subtract a comparable price index based on historic data for that year.

As an example, if you’re looking to calculate inflation for the year 1800, analysts would take a current price index and subtract it from a comparable price index based on 1800 data. Then they would divide the number by the 1800 index and multiply by 100 to get a percent.

Examples of How Inflation Is Calculated

To use our inflation calculator, simply input the amount and both years that you want to compare. The calculator uses the latest CPI-U value from the Bureau of Labor Statistics (BLS). For future years, it also assumes a 2.5% inflation rate that is based on the average of the last 25 years. Here are three examples. 

Example 1: Inflation from January 2023 to January 2024

1. Use the CPI values for both months:

• January 2023 CPI: 299.170​
• January 2024 CPI: 308.417​

2. Calculate the difference between the two CPI values:

• 308.417 - 299.170 = 9.247

3. Divide the difference by the January 2023 CPI to find the inflation rate:

• (9.247 ÷ 299.170) × 100 = 3.09%

Result: The inflation rate from January 2023 to January 2024 was approximately 3.09%.​

Example 2: Inflation from January 2020 to January 2023

1. Obtain the CPI values for both months:

• January 2020 CPI: 257.971​
• January 2023 CPI: 299.170​

2. Calculate the difference between the two CPI values:

• 299.170 - 257.971 = 41.199

3. Divide the difference by the January 2020 CPI to find the cumulative inflation rate:

• (41.199 ÷ 257.971) × 100 = 15.98%

Result: The cumulative inflation rate from January 2020 to January 2023 was approximately 15.98%.​

Example 3: Inflation from January 1990 to January 2019

1. Obtain the CPI values for both months:

• January 1990 CPI: 127.4
• January 2019 CPI: 251.712​

2. Calculate the difference between the two CPI values:

• 251.712 - 127.4 = 124.312

Divide the difference by the January 1990 CPI to find the cumulative inflation rate:

• (124.312 ÷ 127.4) × 100 = 97.58%

Result: The cumulative inflation rate from January 1990 to January 2019 was approximately 97.58%.​

Historic Inflation Rates

While many countries have battled inflation, and even hyperinflation, in the past 120 years, the U.S. has largely avoided those big increases. The average annual inflation in the U.S. between 1913 and 2023 was 3.27%.

If you look at a table containing the inflation rate from 1913 to 2023, you'll notice deflation (expressed as a negative inflation percentage) during the Great Depression (1929-1939). You'll also see significant inflation in the '70s and early '80s. In general, though, the Federal Reserve moderates inflation to keep it around the 2% mark. They do this to maintain inflation rates within a reasonable range.

For reference, the inflation rate from 2017 to 2018 was just 2.44%. However, inflation rose over 9% in 2022, making it one of the more tumultuous years for inflation in recent decades. The early half of 2023 was still high, but things began to cool off as the year progressed. In 2024, inflation was much more stable. But, by the end of the first quarter in 2025, new tariffs pushed global markets down as investors worried that higher import costs could lead to rising prices for consumers.

Monthly Inflation Rate Timeline for 2024-2025

Here's a 12-month breakdown of the inflation rate based on the Consumer Price Index (CPI):

• May 2025: 2.4% increase
• April 2025: 2.3% increase
• March 2025: 2.4% increase
• February 2025: 2.8% increase
• January 2025: 3.0% increase
• December 2024: 2.9% increase
• November 2024: 2.7% increase
• October 2024: 2.6% increase
• September 2024: 2.4% increase
• August 2024: 2.5% increase
• July 2024: 2.9% increase
• June 2024: 3% increase
• May 2024: 3.3% increase

How Does Inflation Affect Your Bottom Line?

If your income stays the same while prices go up, you'll feel the effects of inflation. Your money won't stretch as far and you'll have to make some changes to your budget. In theory, salaries and wages should rise to keep up with inflation so that workers can maintain their standard of living. Social Security benefits, too, are subject to cost of living adjustments (COLAs) that take rising prices into account.

If your income goes up by the same percentage as the inflation rate, your purchasing power is not diminished. It doesn't grow or shrink. If your income rises by a percentage greater than the inflation rate, you'll be able to afford more goods and services. This is the scenario most of us want. It makes us feel better to see our purchasing power growing over time.

Of course, if your income shrinks or disappears, you might be in trouble. Other people who feel the negative effects of inflation are those on a fixed income, or those who hold fixed-income investments while inflation takes its toll on their purchasing power.

For example, if you buy a fixed-income security like a CD with a 5% yield and inflation rises to 7%, you're losing money. In an environment where interest rates are low, it can be tough to beat inflation without buying stocks. Bonds, CDs and savings accounts will keep your principal intact but won't necessarily grow enough to keep pace with inflation. That means you're less likely to meet your retirement savings goals. Fortunately, an inflation calculator can help you figure out a target for your retirement investments in future dollars.

Although stocks bring risk and volatility, they also have a track record of providing inflation-beating returns over time. Investing in stocks not only helps you grow your retirement savings, but it also helps your retirement savings last throughout your entire retirement. It's important to have enough retirement savings that you won't be up all night worrying about inflation.

Once you're retired and out of the workforce, if your retirement nest egg isn't growing, there's not much you can do to preserve your purchasing power if inflation hits. That's why our retirement calculator takes inflation into account when figuring out how much you should save for your golden years.

How to Measure Your Purchasing Power

When you see the word "real" used in relation to finance, it means "adjusted for inflation." So if you hear that "real wages" aren't rising, it means that wages aren't rising above inflation. Same with the "real" increase in home prices over time. There's often a big difference between what you see before and after adjusting for inflation.

Another term for “real wages” is “salary adjusted for inflation.” And the terms “money adjusted for inflation” or “dollar value over time” similarly measure the value of a dollar by taking into account the inflation rate over a period of time.

These terms refer specifically to the way that inflation affects your personal finances. It shows whether your income, savings, or investments are actually keeping up with rising prices. 

For example, if your savings grow at 4% a year but inflation is 3%, your real return is only 1%. But, if inflation is 5%, your money is actually losing value even though the balance is increasing. 

The real rate helps you see the true change in your purchasing power, which affects how much you can afford, how long your savings will last and what adjustments you may need to make in your financial planning.

Governments, businesses and analysts, however, rely on another metric to measure inflation, which is commonly known as the nominal rate. It is used to adjust wages, set interest rates, make policy decisions and compare economic conditions year to year. This serves as a baseline for understanding inflation, even though it doesn’t account for how those price changes affect real income or purchasing power.

Nominal inflation is calculated by taking the average weighted cost of a basket of goods (these include food and energy, among other items and services) in a month and then dividing it by the same basket from a previous month. This rate shows how much prices have gone up in dollar terms. And for older dates before 1913, you would take a current price index and subtract it from a comparable price index that is based on data from that earlier date.

The real rate, by comparison, goes a step further to show how rising prices affect your actual buying power. It compares inflation to changes in income or investment returns. So, while the nominal rate measures how prices change, the real rate measures how it affects your money.

An inflation rate calculator shows how the value of money changes over time. It typically uses the nominal inflation rate to estimate past and future prices. To understand how inflation affects your purchasing power, you can compare the inflation rate to changes in your income, investment returns, or other financial measures. This gives you the real rate of change in value. The basic formula is this:

Growth Rate of Income or Returns – Nominal Inflation Rate = Real Rate

As an example, if the nominal inflation rate is 4% and your income grew by 2%, then you would calculate the real income change as follows: 2% - 4% = -2%. This means your income lost 2% in purchasing power. You should note that the real rate is not a separate index but a way to adjust for how inflation impacts your finances.

Our inflation calculator lets you plot the value of a dollar over time. And helps you visualize that change with a chart that breaks down the average inflation for a specific range of years and the cumulative inflation over the same period.

Strategies For Potentially Beating Inflation

If your investments aren't providing returns equal to or greater than the inflation rate, you're probably in trouble. You'll find yourself making tough choices about what you can afford as inflation eats into your purchasing power. Therefore, investors should count on inflation and plan accordingly.

Similarly, when saving for retirement, you should keep an eye on investments that will help you maintain or improve your standard of living. You should consider whether these investments, among other things, can provide inflation-beating gains. The fact that Social Security benefits automatically adjust for inflation is part of what makes them such a powerful resource for retirees.

To protect your savings, here are three common strategies that investors use to beat inflation:

• Diversification and risk management: Putting your money in different types of investments can help you reduce risk. Some investments, like stocks, may grow faster, while others, like bonds or real estate, may offer steady income. Diversifying across different assets helps your money stay balanced when inflation goes up or down.
• Commodities: These assets include gold, silver, oil and food products, and often go up in value during inflation. Some people buy commodities to protect their money. However, prices can go up and down quickly, and they usually don’t pay income like interest or dividends.
• Treasury inflation-protected securities (TIPS): TIPS are special government bonds that rise in value with inflation. When the cost of living goes up, so does the value of TIPS. They are low-risk and can help protect part of your money from losing value due to rising prices.