See how inflation silently erodes your purchasing power over time. Calculate what your money will really be worth in the future and how much you'll need to maintain your current standard of living.
See how inflation erodes your purchasing power over time and what your money will really be worth.
Historical Context
The U.S. average annual inflation rate has been approximately 3.2% since 1913. Over the past decade, it has averaged around 3.6% including the post-pandemic surge. For long-term planning, 3% is a commonly used assumption.
In-Depth Guide
Learn how inflation erodes purchasing power, what drives price increases, and proven strategies to protect and grow your wealth in an inflationary environment.
Read Full GuideInflation is often called the "silent tax" on your wealth. Unlike market crashes or recessions that make headlines, inflation quietly erodes the value of your money every single day. Understanding inflation is crucial for anyone who saves money, plans for retirement, or makes long-term financial decisions.
In the United States, inflation is primarily measured by the Consumer Price Index (CPI), which tracks the average change in prices paid by urban consumers for a basket of goods and services. The Bureau of Labor Statistics (BLS) publishes CPI data monthly. Other measures include the Personal Consumption Expenditures (PCE) price index, which the Federal Reserve uses as its preferred inflation gauge.
Many people think keeping money in a savings account is "safe." While it protects against market risk, it doesn't protect against inflation risk. With a traditional savings account earning 0.5% and inflation at 3%, you're losing 2.5% of your purchasing power every year. On $100,000, that's $2,500 in real value lost annually. Even high-yield savings accounts at 4-5% only slightly outpace inflation, making them suitable for short-term savings but not long-term wealth building.
Every aspect of financial planning should account for inflation. When setting savings goals, remember that $1 million in 30 years will have the purchasing power of roughly $412,000 today (at 3% inflation). When planning retirement income, factor in that your expenses will roughly double every 24 years at 3% inflation. Our suite of financial calculators helps you plan for these realities with accurate, inflation-adjusted projections.
Inflation is the general increase in prices over time, which means each dollar buys less than it did before. At 3% annual inflation, something that costs $100 today will cost $134 in 10 years and $181 in 20 years. This directly affects your savings, retirement planning, and purchasing power. If your money isn't growing at least as fast as inflation, you're effectively losing wealth every year.
As of early 2026, the US inflation rate has moderated to approximately 2.5-3.0% annually, measured by the Consumer Price Index (CPI). This is close to the Federal Reserve's long-term target of 2%. However, certain categories like housing, healthcare, and education continue to inflate at higher rates. For long-term financial planning, most advisors recommend using 3% as a conservative estimate.
Inflation has a dramatic impact on retirement planning. If you need $4,000/month in today's dollars and plan to retire in 25 years, you'll actually need about $8,375/month (at 3% inflation) to maintain the same lifestyle. Over a 30-year retirement, this means you need significantly more saved than you might expect. Our retirement calculator accounts for inflation, but this inflation calculator helps you understand the underlying math.
Purchasing power refers to the quantity of goods and services you can buy with a unit of currency. When prices rise due to inflation, your purchasing power decreases. For example, if you have $100,000 in a savings account earning 1% interest while inflation is 3%, your money grows to $101,000 but prices rise 3%, so you can actually buy less than before. You've effectively lost 2% of your purchasing power.
Several strategies can help beat inflation: (1) Invest in stocks, which have historically returned 10% annually, well above inflation. (2) Consider TIPS (Treasury Inflation-Protected Securities) for guaranteed inflation-adjusted returns. (3) Real estate often appreciates at or above inflation rates. (4) I Bonds offer inflation-indexed returns up to $10,000/year. (5) Avoid holding excess cash — keep only 3-6 months of expenses in cash savings.
The US average annual inflation rate has been approximately 3.2% since 1913 (when CPI tracking began). However, it has varied significantly by decade: 1970s saw 7.4% average, 1980s saw 5.1%, 1990s-2010s averaged 2-3%, and 2021-2023 spiked to 5-8% before moderating. For financial planning purposes, 3% is the most commonly used long-term assumption, balancing historical trends with the Fed's 2% target.
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