Dollar Inflation Calculator
Calculate the purchasing power of the US Dollar over time based on annual inflation rates.
Note: This calculation uses a fixed annual compound rate to simulate historical or projected changes.
Understanding US Dollar Inflation
Inflation is the rate at which the general level of prices for goods and services rises, and subsequently, how purchasing power falls. When inflation occurs, every dollar you own buys a smaller percentage of a good or service. For example, if the inflation rate is 3% per year, then theoretically a $1.00 pack of gum will cost $1.03 in a year.
How the Inflation Calculator Works
This calculator uses the compound interest formula to determine how much a specific dollar amount from the past would be worth in a future year, given a steady inflation rate. The formula used is:
FV = PV * (1 + r)^n
- FV: Future Value (Purchasing power in the end year)
- PV: Present Value (Original dollar amount)
- r: Annual inflation rate (decimal)
- n: Number of years (End Year – Start Year)
Historical Inflation Context
While this tool allows you to input a custom average rate, historical US inflation has fluctuated significantly. During the 1970s, the US experienced "Great Inflation" where rates peaked near 14% in 1980. Conversely, the 1990s and 2010s saw periods of relatively low, stable inflation averaging around 2% to 3%.
| Decade | Average Inflation Rate (Approx) | What $100 Became |
|---|---|---|
| 1970 – 1980 | 7.25% | $201.36 |
| 1990 – 2000 | 2.90% | $133.09 |
| 2010 – 2020 | 1.75% | $118.94 |
Why Does the Dollar Value Change?
The value of the dollar changes due to several economic factors:
- Demand-Pull Inflation: When demand for goods exceeds the supply, prices rise.
- Cost-Push Inflation: When production costs (like oil or labor) increase, companies pass those costs to consumers.
- Monetary Policy: The Federal Reserve manages the money supply. Increasing the supply of money faster than the economy grows can lead to inflation.
Frequently Asked Questions
What is the Consumer Price Index (CPI)?
The CPI is the most common measure of inflation. It tracks the change in prices paid by consumers for a representative "basket" of goods and services, including food, energy, and housing.
Does inflation affect all items equally?
No. While the "average" inflation rate might be 3%, specific sectors like healthcare or higher education often see much higher inflation rates, while technology (like computers) might actually see "deflation" or price drops over time.
How do I protect my savings from inflation?
Many investors use assets like stocks, real estate, or Treasury Inflation-Protected Securities (TIPS) which historically have the potential to grow at a rate that exceeds inflation, preserving purchasing power.