Inflation Calculator
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What is inflation?
Inflation measures the average change in prices for goods and services over time. In other words, inflation represents an average increase in prices. Deflation is the opposite — it represents an average decrease in prices.
Inflation matters because it affects the cost of things consumers buy. A steady, predictable inflation rate is ideal. When inflation is too high, goods and services cost more and consumers spend less. The rate of inflation for the last year (ending in February 2024) is 3.2%.
Investing for long-term goals can help your money outpace inflation. View NerdWallet's analysis of the best investment accounts or our list of the best financial advisors to get started.
Average inflation rate
The long-term average inflation rate is around 3%, and the Federal Reserve target inflation rate is 2%. According to the Federal Reserve, a 2% inflation rate is most in line with the system's mandate to maintain maximum employment and price stability. When inflation is stable, it means households are able to accurately predict their costs, whether that means the cost of consumer goods or borrowing money.
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How to calculate the inflation rate
To calculate the rate of inflation, you’ll need a start date, an end date, and a chart of the Consumer Price Index, a measure of average changes in prices over time issued by the U.S. Bureau of Labor Statistics.
Subtract the CPI of the start date from the CPI of the end date.
Divide that number by the CPI of the start date.
Multiply this number by 100 and add a percent sign, and there’s the inflation rate for that period.
Example:
1990 CPI = 130.7
2010 CPI = 218.056
Equation: ((218.056-130.7)/130.7) x 100
So, we have 66.837% inflation between 1990 and 2010.
To see how inflation affects the value of $1, first divide the inflation rate by 100. Then, multiply that number by $1 (or any starting dollar amount you wish). Then add that number to your dollar amount.
Equation:
((66.837/100) x 1) + $1 = $1.67
((66.837/100) x 5) + $5 = $8.34
In this instance $1 in 1990 had the purchasing power of $1.67 in 2010, and $5 in 1990 had the purchasing power of $8.34 in 2010.
Inflation example
Say a movie ticket cost $5 in 2000, and in 2023, that same movie ticket costs $10. This doesn't mean $5 would grow to $10. It means that your $5 — if you stuck it under a mattress for 23 years — would only buy you half of a ticket in 2023.
If the amount of money you have or make stays the same, it will buy you less as time goes on. That’s due to inflation.
If you want the money you save to keep pace with inflation — or better yet, outgrow it — you need it to gather a lot more than dust while you pass the time.
Investing allows you to accumulate more money with the dollars you save. For context, the stock market has historically posted an average annual return of around 7% after inflation. If you earn a 6% average annual return, a fairly conservative goal, $5 invested back in 2000 could be worth nearly $20 today. Invest a larger amount — say, $10,000 — and it will really start to snowball: $10,000 invested in 2000 could be worth around $38,000 today.
Keep in mind that investing in the stock market is for long-term goals that are at least five years away. If you need your money before that, take a look at the best short-term investments.
» Ready to start making your money grow? Check out our picks for the best brokers
What is hyperinflation?
Hyperinflation is what happens when prices rise by at least 50% in one month or by 1,000% per year. Regular items, such as groceries and clothing, quickly become unaffordable. Hyperinflation is a rare economic phenomenon, and the U.S. has never experienced it.
How to protect against inflation
If you're looking to safeguard your portfolio against inflation, there are a few investments that tend to perform better during times of high inflation.
1. Real assets. Assets such as gold or real estate, which retain value or provide pricing power, help withstand inflation. For example, landlords sometimes raise rents as inflation rises.
2. Stocks. Especially stocks with proven earnings growth and low debt. Interest rates tend to rise with inflation, causing companies with high debt to face higher payments. Commodity stocks tend to perform particularly well.
3. Treasury Inflation-Protected securities. During inflationary times, rising interest rates negatively impact traditional bonds because bond prices and interest rates have an inverse relationship. TIPs are a type of bond indexed directly to CPI meant to help investors preserve purchasing power. I bonds are a powerful investing tool to explore since they are are designed to protect your investment from inflation.
» Check out the I bonds calculator
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