Inflation Calculator
Find out how inflation erodes purchasing power and what today's money will be worth in the future.
The Formula
r = annual inflation rate · n = years
= $1,000 × (1.03)¹⁰
= $1,000 × 1.3439
= $1,344 in 10 years
What Is Inflation?
Inflation is the rate at which the general level of prices rises over time, reducing the purchasing power of money. The US Federal Reserve targets 2% annual inflation as healthy for a growing economy.
How Inflation Affects Your Money
At 3% annual inflation, $1,000 today will have the purchasing power of only about $744 in 10 years. This is why investing money — rather than leaving it in a low-yield savings account — is important for preserving wealth.
Frequently Asked Questions
What is the average historical US inflation rate?
The average annual inflation rate in the US has been approximately 3.1% since 1914. It has ranged from deflation during the Great Depression to over 13% in 1979–1980. The Federal Reserve's current target is 2% annually, which is considered the sweet spot between healthy economic growth and price stability.
How does the Federal Reserve fight inflation?
The Fed's primary tool is the federal funds rate — the interest rate at which banks lend to each other overnight. Raising this rate makes borrowing more expensive for businesses and consumers, which reduces spending and cools demand, putting downward pressure on prices. The Fed raised rates aggressively in 2022–2023 in response to post-pandemic inflation, one of the fastest rate hike cycles in history.
Is a little inflation actually good?
Yes — mild inflation around 2% is generally considered healthy. It encourages spending and investment (since money sitting idle loses value), gives businesses room to adjust wages and prices, and gives the Fed tools to stimulate the economy in downturns. Deflation — falling prices — sounds good but is actually dangerous, as it causes consumers to delay purchases and can trigger economic downturns.
How do I protect my savings from inflation?
The most effective long-term protection is investing in assets that historically outpace inflation — stocks, real estate, and Treasury Inflation-Protected Securities (TIPS). High-yield savings accounts and I-Bonds offer some protection. Keeping large amounts in a standard checking or savings account with low interest rates is one of the worst things to do during high-inflation periods.
What is a COLA and how is it calculated?
COLA stands for Cost of Living Adjustment. It is used to automatically adjust income to keep up with inflation, most notably in Social Security benefits. Social Security COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If inflation was 3.2% over the measurement period, Social Security recipients get a 3.2% increase in benefits the following year.