Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. In the US, inflation is primarily measured by the Consumer Price Index (CPI), which tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

When inflation occurs, each dollar buys fewer goods and services. For example, if the inflation rate is 2% annually, then a $1 item will cost $1.02 the following year.

This calculator uses historical Consumer Price Index (CPI) data from the US Bureau of Labor Statistics (BLS), which is the official source for inflation data in the United States. The CPI is calculated based on the prices of a basket of goods and services that represent typical consumer purchases.

The calculator updates annually with the latest CPI data. For the current year, it uses projected inflation rates based on recent trends.

This calculator provides a close approximation of inflation based on official CPI data. However, it's important to note that:

• Individual spending patterns may differ from the average "basket" used to calculate CPI
• Some goods and services inflate at different rates (e.g., healthcare costs typically rise faster than electronics)
• The calculator doesn't account for taxes, investment returns, or changes in quality of goods

For precise calculations needed for legal or financial purposes, consult with a financial professional or use official government calculators.

Understanding inflation is crucial for:

• Retirement planning: $1 million today won't have the same purchasing power in 30 years
• Salary negotiations: A 2% raise when inflation is 3% means a real wage decrease
• Investment decisions: Returns must outpace inflation to increase real wealth
• Historical comparisons: Comparing prices from different years requires inflation adjustment
• Loan considerations: Inflation can reduce the real burden of fixed-rate debt over time

Over the past century, the average annual inflation rate in the United States has been approximately 3.2%. However, this varies significantly by decade:

• 1970s: High inflation, averaging about 7.1% annually
• 1980s: Initially high (13.5% in 1980) then declining
• 1990s-2000s: Relatively low, averaging 2.5-3%
• 2010s: Very low, averaging about 1.8%
• 2020s: Elevated inflation post-pandemic, exceeding 7% in 2022

The Federal Reserve targets 2% inflation as ideal for economic stability and growth.