Inflation Calculator
Historical US Inflation Rates
Inflation Impact
At 3% Inflation
Prices double in ~24 years
At 5% Inflation
Prices double in ~14 years
At 7% Inflation
Prices double in ~10 years
Related Calculators
Understanding Inflation
What is Inflation?
Inflation is the rate at which the general level of prices for goods and services rises over time, causing purchasing power to fall. When inflation occurs, each unit of currency buys fewer goods and services.
Inflation Formula
How Inflation Affects Your Money
Example: $1,000 at 3% Annual Inflation
| Years | Buying Power | Lost |
|---|---|---|
| 5 | $862.61 | $137.39 |
| 10 | $744.09 | $255.91 |
| 20 | $553.68 | $446.32 |
| 30 | $411.99 | $588.01 |
The Rule of 72
The Rule of 72 is a quick way to estimate how long it takes for prices to double at a given inflation rate: Years to Double = 72 / Inflation Rate
Types of Inflation
Creeping Inflation
1-3% annual increase. Generally considered healthy for the economy and allows for gradual price adjustments.
Walking Inflation
3-10% annual increase. More concerning, can erode savings and reduce purchasing power noticeably.
Galloping Inflation
10-50% annual increase. Severe economic problem that can destabilize an economy quickly.
Hyperinflation
50%+ monthly increase. Currency becomes nearly worthless. Historical examples: Zimbabwe, Venezuela.
Protecting Against Inflation
Investment Strategies
Inflation-Beating Options:
- • Stocks (historically 7-10% real return)
- • Real estate
- • TIPS (Treasury Inflation-Protected Securities)
- • I Bonds
- • Commodities
Vulnerable to Inflation:
- • Cash in savings accounts
- • Fixed-rate bonds
- • Fixed pensions
- • Long-term fixed contracts
Real vs. Nominal Values
Understanding the Difference
Nominal value: The face value of money without adjusting for inflation.
Real value: The value after adjusting for inflation (purchasing power).
If your salary increases 3% but inflation is 4%, your real salary decreased by 1%.
Why 2% Inflation Target?
Most central banks target 2% inflation because it's considered the sweet spot: high enough to give the economy room to grow and central banks flexibility to cut interest rates during recessions, but low enough to maintain price stability and not significantly erode purchasing power.
Frequently Asked Questions
How does inflation affect my savings?
Inflation erodes the purchasing power of your savings over time. If your savings earn 2% but inflation is 3%, you're losing 1% of purchasing power annually. After 20 years at 3% inflation, your $100 will only buy what $55 buys today. This is why investing in assets that outpace inflation is crucial for long-term wealth preservation.
What is the Rule of 72 for inflation?
The Rule of 72 estimates how long it takes for prices to double at a given inflation rate. Divide 72 by the inflation rate: at 3% inflation, prices double in about 24 years (72/3). At 6% inflation, prices double in just 12 years. This helps visualize the long-term impact of inflation on your purchasing power.
How can I protect my money from inflation?
Consider inflation-beating investments: stocks (historically 7-10% real returns), real estate, TIPS (Treasury Inflation-Protected Securities), I Bonds, and commodities. Avoid holding too much in cash or low-yield savings accounts. A diversified portfolio with growth assets typically outpaces inflation over long periods.
What is the difference between real and nominal returns?
Nominal return is your investment gain before accounting for inflation (what you see in your account). Real return is your gain after subtracting inflation, representing your actual increase in purchasing power. If you earn 8% but inflation is 3%, your real return is approximately 5%. Focus on real returns for true wealth measurement.