A dollar today is not worth a dollar tomorrow. Over the past 50 years, inflation has reduced the purchasing power of a dollar by roughly 85% — meaning what cost $1 in 1974 costs about $6.50 today. Understanding how inflation works, how it is measured, and how it affects your savings and investments is essential for making sound long-term financial decisions.
The Consumer Price Index (CPI) tracks the average price change of a basket of ~80,000 goods and services that represents typical urban consumer spending. The Bureau of Labor Statistics (BLS) updates it monthly. The annual percentage change in CPI is what most people mean by “the inflation rate.” Core CPI excludes food and energy (which are volatile) and is the measure the Federal Reserve watches most closely for policy decisions.
| Period | Average Annual Inflation | $100 Became |
|---|---|---|
| 1970s | 7.4% | $49 purchasing power by 1980 |
| 1980s | 5.1% | $61 purchasing power by 1990 |
| 1990s | 2.9% | $75 purchasing power by 2000 |
| 2000s | 2.6% | $77 purchasing power by 2010 |
| 2010s | 1.8% | $84 purchasing power by 2020 |
| 2020–2025 | 4.8% | $79 purchasing power by 2025 |
The 2020s saw the highest sustained inflation since the 1980s, driven by pandemic stimulus, supply chain disruptions, and energy prices. Use the Inflation Calculator to see how inflation has affected any dollar amount over any time period.
Divide 72 by the inflation rate to estimate how many years it takes for purchasing power to halve. At 3% inflation, your money loses half its value in 24 years. At 7%, it takes only 10 years. This is why money sitting in a checking account earning 0.01% is guaranteed to lose value in real terms. A savings account earning 4–5% roughly keeps pace with 3% inflation (after taxes), but only barely.
Real returns vs. nominal returns: If your investments return 8% and inflation is 3%, your real (inflation-adjusted) return is approximately 5%. This is the number that actually matters for building purchasing power. A “guaranteed 6% return” during a period of 5% inflation is really only a 1% real return. Always think in real terms when evaluating investment performance. Read our Compound Interest Guide for how returns compound over time.
Equities (stocks) have historically been the best long-term inflation hedge, returning roughly 7% above inflation over rolling 30-year periods. Companies can raise prices and wages, passing inflation through to revenue and earnings. Real estate provides inflation protection through both appreciating property values and the ability to raise rents. I Bonds (Series I Savings Bonds) directly adjust their interest rate for inflation, with the inflation component reset every 6 months. TIPS (Treasury Inflation-Protected Securities) adjust their principal value for CPI changes.
Assets that perform poorly during inflation: long-term fixed-rate bonds (their fixed payments lose purchasing power), cash and savings accounts (unless rates exceed inflation), and fixed-income annuities. The worst place to hold money during inflation is a zero-interest checking account — you are guaranteed to lose purchasing power every day. Read our Investing Guide and Retirement Planning Guide for portfolio strategies.
See how inflation has affected any dollar amount over any time period. Use the free Inflation Calculator to run the numbers — no signup required.
Related tools: Compound Interest Calculator · Savings Growth Calculator · Retirement Calculator · Cost of Living Calculator · Future Value Calculator · Present Value Calculator