Inflation is the gradual decrease in the purchasing power of money over time. As prices for goods and services rise, each dollar you own buys a smaller percentage of a good or service. This US Dollar Inflation Calculator uses historical Consumer Price Index (CPI-U) data to show how the value of money has changed from 1913 to the present day.
How This Calculator Works
The logic behind this tool relies on the Consumer Price Index (CPI), which tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The formula used is:
Formula:
Target Value = Initial Amount × (CPI in Target Year / CPI in Start Year)
For example, if the CPI in the start year was 100 and the CPI in the target year is 200, the cost of goods has doubled. Therefore, you would need twice as much money in the target year to purchase the same amount of goods as you did in the start year.
Why Purchasing Power Matters
Understanding purchasing power is crucial for long-term financial planning, retirement savings, and salary negotiations. Here is why inflation impacts your finances:
Savings Erosion: Money kept in a standard checking account earning 0% interest effectively loses value every year due to inflation.
Cost of Living Adjustments (COLA): Salaries must increase at least by the rate of inflation for a worker to maintain their standard of living.
Investment Returns: When calculating returns on investments, the "real rate of return" is the nominal return minus the inflation rate.
Historical Inflation Context
The United States has experienced varying periods of inflation and deflation. The period known as "The Great Inflation" occurred from 1965 to 1982, where inflation rates soared. Conversely, the Great Depression saw periods of deflation (negative inflation). In recent years, central banks aim for a target inflation rate of around 2% to ensure economic stability.
Using the Calculator
Simply enter a dollar amount, select the year that money represents, and then select the year you wish to compare it to. The calculator will determine what that amount of money would be worth in the target year's dollars.