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Inflation Calculator

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This calculator helps determine the buying power of a dollar over time in the United States

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This is an average inflation rate of and cumulative inflation of .
Value of a Dollar Over Time
The following chart shows the change in value of from to . A projected inflation rate of was used to calculate values from to .
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Our inflation calculator helps you understand how the purchasing power of a certain dollar amount will change over time. In general, the value of money decreases over time. This means that $5 today won’t buy you the same amount of goods or services as it would in 10 years. Our tool shows both the history of actual inflation and a projection of future inflation. For years prior to 2015, the new value of the dollar amount is calculated using historical annual inflation rates provided by the Bureau of Labor Statistics. For years between 2016 and 2065, the new value is calculated using the historical average inflation rate, but this can be adjusted.

CPI-U: The average Consumer Price Index - Urban (CPI-U) has been calculated every year since 1913 by the Bureau of Labor Statistics (BLS). This reflects changes in the prices of all goods and services purchased for consumption by urban households. Urban households make up about 87% of the total U.S. population. For the current year, the latest monthly CPI-U value is used.

Future Inflation Rate: We assume a 2.5% future inflation rate because that is the average of the last 25 years (but you can adjust this).

Inflation Calculator

Photo credit: © iStock/Newbird

Inflation is the increase in the prices of goods and services across an economy. When prices inflate, you need more money to buy the same things. The opposite of inflation is deflation, when prices are lower across a range of goods and services. Inflation is an important concept for investors to understand because inflation eats into your returns on your investments.

The Inflation Rate Defined

To measure the inflation rate, you can't just take a single good and measure how its price changes. You have to look at what's called a "basket" of goods and services. In the US, inflation rates come from the Consumer Price Index (CPI). The Consumer Price Index takes what the government considers a representative basket of goods and services and records changes in their prices from month to month and year to year.

Historical Inflation Rates

While many countries have battled inflation and even hyperinflation in the past 120 years or so, the US has largely avoided that fate. Average annual inflation in the US between 1913 and 2013 was 3.22%.

If you look at a table containing the inflation rate from 1915 to 2015, you'll notice deflation (expressed as a negative inflation percentage) during the Great Depression. You'll also notice significant inflation in the '70s and early '80s. In general, though, the US Federal Reserve moderates inflation to keep it around the 2% mark. In other words, you don't need to worry that you'll be carrying suitcases full of dollars to the grocery store any time soon.

One of the privileges of living in a developed country in this day and age is a certain amount of confidence that inflation rates will stay within a reasonable range. So far in 2015, inflation is at -0.1%.

Inflation and You

If your income stays the same while prices go up, you'll feel it. Your money won't stretch as far and you'll have to make some changes to your budget. In theory, salaries and wages should rise to keep up with inflation so that workers can maintain their standard of living. Social Security benefits, too, are subject to Cost of Living Adjustments (COLAs) that take rising prices into account.

If your income rises by the same percentage as the inflation rate, your purchasing power is not diminished. It doesn't grow or shrink. If your income rises by a percentage greater than the inflation rate, you'll be able to afford more goods and services. This is the scenario most of us want. It makes us feel better to see our purchasing power growing over time.

Of course, if your income shrinks or disappears, you might be in trouble. Other people who feel the negative effects of inflation are those on a fixed income, or those who hold fixed-income investments while inflation takes its toll on their purchasing power.

For example, if you buy a fixed-income security like a CD with a 2% yield and inflation rises to 4%, you're losing money. In an environment where interest rates are low, it can be tough to beat inflation without buying stocks. Bonds, CDs and savings accounts will keep your principal intact but won't necessarily grow enough to keep pace with inflation. That means you're less likely to meet your retirement savings goals. Fortunately, an inflation calculator can help you figure out a target for your retirement investments in future dollars.

Although stocks bring risk and volatility, they also have a track record of providing inflation-beating returns over time. Investing in stocks not only helps you grow your retirement savings, but it also helps your retirement savings last throughout your entire retirement. It's important to have enough retirement savings that you won't be up all night worrying about inflation.

Once you're retired and out of the workforce, if your retirement nest egg isn't growing, there's not much you can do to preserve your purchasing power if inflation hits. That's why our retirement calculator takes inflation into account when figuring out how much you should save for your golden years.

Get Real

Photo credit: © iStock/kutaytanir

When you see the word "real" used in relation to finance, it means "adjusted for inflation." So if you hear that "real wages" aren't rising, it means that wages aren't rising above inflation. Same with the "real" increase in home prices over time. There's often a big difference between what you see before and after adjusting for inflation.

An inflation calculator shows you the value of the same sum of money at different times in the past and the future. It can tell you about historic prices and future inflation. Estimates of future prices and values are usually based on projections using the average inflation rate - essentially an expected inflation calculator.

Wondering how to calculate the inflation rate in a given year? The CPI helps, but it only goes as far back as 1913. To find the historic inflation rate in, say, 1800, analysts take a current price index and then subtract a comparable price index based on data from 1800. They then divide that number by the 1800 index and multiply by 100 to get a percent. The formula for calculating inflation is: (Price Index Year 2-Price Index Year 1)/Price Index Year 1*100 = Inflation rate in Year 1.

As we mentioned, future inflation calculators generally base their projections on recent averages. In the US, where inflation volatility hasn't been a problem lately, it's pretty safe to assume that future inflation will hover around 2.5%. A future inflation calculator lets you see how many future dollars will equal a certain number of today's dollars. Sometimes you can even adjust the inflation rate to see what would happen to your purchasing power if there were extreme inflation or deflation.

Bottom Line

If your investments aren't providing returns equal to or greater than the inflation rate, you're probably in trouble. You'll find yourself making tough choices about what you can afford as inflation eats into your purchasing power. In other words, investors should count on inflation and plan accordingly.

Preparing for retirement by stashing your savings under your mattress won't cut it if you want to maintain or improve your standard of living. All investments should be considered, among other things, on their ability to provide inflation-beating gains. The fact that Social Security benefits automatically adjust for inflation is part of what makes them such a powerful tool for retirees. Now that you know about inflation, you can start working on strategies for beating it.

Places with the Least Inflation

SmartAsset’s interactive map highlights the places across the country that have experienced the least inflation over the past decade. Zoom between states and the national map to see the places that have been the most resistant to inflation over ten years.

Least
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Rank Urban Area Change in Purchasing Power Avg. Change in Cost of Living Avg. Change in Personal Income

Methodology

We determined the cost of living for each location by looking at the price for a basket of goods. The goods included basics like milk, shampoo and rent. We did this for both 2006 and 2016. We also calculated the average per capita personal income for each city for both years.

To figure out how far money would go in each city, we calculated purchasing power. We divided the average per capita income by the cost of living in each city for both 2006 and 2016. The change in purchasing power from 2006 to 2016 then shows us the metro areas in the country that have seen the least inflation over the past decade.

Sources: Council for Community and Economic Research, Bureau of Economic Analysis