Inflation & Future Purchasing Power Calculator

Inflation represents the rate at which the general level of prices for goods and services rises, eroding currency purchasing power. At a historical 3.25% average annual inflation rate, prices double roughly every 22 years (Rule of 72). A dollar today will purchase only about 50 cents worth of goods in two decades.

The Consumer Price Index (CPI) measures changes in the price level of a market basket of consumer goods. Headline CPI includes all categories, while Core CPI excludes volatile food and energy commodities to measure underlying long-term structural inflation trends.

Holding cash or low-yield savings accounts guarantees purchasing power loss during inflationary periods. Effective inflation hedges historically include broad equity index funds (which grow earnings with pricing power), real estate, Treasury Inflation-Protected Securities (TIPS), and high-demand commodities.

Bracket creep occurs when inflation pushes income into higher marginal tax brackets without any increase in real purchasing power. Lifestyle inflation refers to the psychological tendency to increase spending as income rises, neutralizing wealth accumulation.

Retirees relying on fixed pensions or non-indexed annuities experience severe standard-of-living cuts. After 15 years at 3.5% annual inflation, a fixed $3,000 monthly pension loses 40% of its real buying power, equivalent to just $1,790 in initial purchasing capacity.