Inflation is the rate at which the general price level of goods and services rises over time, eroding purchasing power. A dollar today buys less than it did 10 years ago because of inflation.

What is the US Fed inflation target?

The Federal Reserve targets an average of 2% annual inflation, as measured by the PCE price index. This rate is considered consistent with maximum employment and stable prices.

How does cumulative inflation differ from annual inflation?

Annual inflation is the year-over-year percentage change in prices. Cumulative inflation compounds over multiple years. At 3% annual inflation, cumulative inflation over 10 years is (1.03)^10 − 1 ≈ 34.4%, not 30%.

What does purchasing power loss mean?

If inflation is 3% per year for 10 years, $1 today has the buying power of about $0.74 in 10 years. The purchasing power loss is approximately 25.6% — meaning you need $1.34 in 10 years to buy what $1 buys today.

What is the difference between future cost and present value mode?

Future cost mode answers: 'If something costs $100 today, how much will it cost in N years?' Present value mode answers: 'If I receive $100 in N years, what is it worth in today's dollars?'

Inflation Calculator

Use this free inflation calculator to discover how much your money will be worth in the future, how much prices will have risen, and how much purchasing power you will lose over time.

What is Inflation?

Inflation is the rate at which the general price level of goods and services rises over time. As prices increase, each unit of currency buys fewer goods and services — in other words, purchasing power falls. Understanding inflation is essential for retirement planning, salary negotiations, and long-term financial goals.

The core formula:

Future Value = Present Value × (1 + Inflation Rate)^Years

For the reverse calculation (present value of a future amount):

Present Value = Future Amount ÷ (1 + Inflation Rate)^Years

Why Does Inflation Matter?

A 3% annual inflation rate seems small, but it compounds powerfully over time. At 3%, prices roughly double in about 24 years (Rule of 72 applies here: 72 ÷ 3 = 24). This means a retirement nest egg or savings plan must account for the eroding effect of inflation to maintain real purchasing power.

Cumulative Inflation vs. Annual Inflation

Annual inflation refers to the year-over-year percentage change in prices. Cumulative inflation is the compounded effect over multiple years. At 3% annually for 10 years, prices rise by approximately 34.4%, not 30%, due to the compounding effect.

Purchasing Power Loss

Purchasing power loss measures how much less you can buy with the same nominal amount of money. If the annual inflation rate is 3% over 10 years, $1 today will only have the buying power of approximately$ 0.74 in 10 years — a loss of about 25.6%.

How to Use This Calculator

Enter the amount — the dollar value you want to adjust.
Set the annual inflation rate — the Fed targets 2%; the US long-run average is approximately 3%.
Set the number of years — how far into the future or past you want to calculate.
Choose the mode:
- Future Cost: What will $X today cost in N years?
- Present Value: What is $X received in N years worth in today’s dollars?
Click Calculate to get results.

Examples

Example 1 — College Tuition Planning

College tuition currently costs $25,000 per year. You have a child who will start college in 15 years. Assuming 5% annual tuition inflation, what will it cost?

Future Cost = $25,000 × (1.05)^15 =$ 25,000 × 2.0789 = $51,973

You need to save with this future cost in mind — more than twice the current amount.

Example 2 — Retirement Purchasing Power

You plan to retire in 25 years with a fixed pension of ** $3,000/month**. With **3% annual inflation**, what will that$ 3,000 be worth in today’s dollars?

Present Value = $3,000 ÷ (1.03)^25 =$ 3,000 ÷ 2.0938 = $1,433

Your fixed pension will have the purchasing power of only $1,433 today. This is why pensions and retirement accounts need inflation adjustments.

Example 3 — Grocery Basket

A weekly grocery basket costs $150 today. With 2.5% annual inflation (near the Fed’s target), how much will it cost in 10 years?

Future Cost = $150 × (1.025)^10 =$ 150 × 1.2801 = $192.02

You would need $42 more per week (in nominal terms) to buy the same groceries.

FAQ

What is the current US inflation rate?

The Federal Reserve targets 2% annual inflation. Actual inflation varies and is measured by the Consumer Price Index (CPI) published monthly by the Bureau of Labor Statistics. For historical CPI data, visit bls.gov/cpi/.

What is the difference between CPI and PCE inflation?

CPI (Consumer Price Index) measures the average change in prices paid by urban consumers. PCE (Personal Consumption Expenditures) measures changes in what consumers spend. The Fed uses PCE as its primary inflation gauge. Historically, PCE runs slightly below CPI.

How does inflation affect savings accounts?

If your savings account earns 1.5% interest but inflation is 3%, your real (inflation-adjusted) return is negative: approximately −1.5% per year. This means the purchasing power of your savings is declining even if the nominal dollar amount increases.

Should I use the historical or expected inflation rate?

For planning purposes, use an expected rate. The US long-run average CPI inflation (1913–2023) is about 3.2%. The Fed’s 2% target is commonly used for financial planning. For specific time period comparisons, use historical CPI data from the BLS.

How does inflation interact with investment returns?

The real return on an investment is approximately: Real Return = Nominal Return − Inflation Rate. If your portfolio earns 7% per year and inflation is 3%, your real return is about 4%. Compounding amplifies this difference significantly over long horizons.