This inflation calculator adjusts a given amount of money with inflation based on US CPI data and it can perform all inflation related calculations. More about purchasing power of money you can read below the tool.

Method 1 – determine the equivalent value of US dollar between 2 years (in any year from 1913 to 2012).
Money amount: *
\$
Initial year: *
Final year: *
Method 2 - determine the inflation based on a certain average inflation rate after some years.
Money amount: *
\$
Average inflation rate: *
%
After # years: *
Y
Method 3 – determine the purchasing power of money few years ago at a specific inflation rate the user inputs.
Money amount: *
\$
Average inflation rate: *
%
No. of years ago: *
Y

## What is inflation and how does it affect us?

In the most common terms the inflation can be defined as an increase in the price of the most representative goods and services within specific economy. It is a macroeconomic indicator that measures the variation of the prices of a basket of goods in a specific time period. The opposite of the inflation is called deflation which shows a price decrease.

This figure is measured as an annual percentage increase. For instance 2% inflation rate means that comparing to the previous year, the prices for specific items went up with 2% ( e.g for a book of 20 dollars in year one, an inflation rate of 2% in second year means that the new price of the book will be 20+20*2/100=20.4 dollars).

This economic phenomenon affects directly each of us, as the higher the inflation is the worst things can get for all of us. The purchase power is directly related to it, as such for instance let's assume, if in 2010 at a price of \$20 you could purchase a book, today the same product costs 25 dollars, which means that your 2010's 20 dollars can only buy 80% of the same book.

## What is the relation between inflation and money?

Since inflation is a sustained increase in the general prices that means when it is at high levels, the money simply melts. The general rule says that when inflation increases, the purchasing power decreases.

In regard of what are the causes of inflation, there are numerous factors that determine or contribute to its growth. At the most basic level, this phenomenon is caused by 2 categories of factors:

• demand: when the demand  increases faster than the supply than leads to an increase in prices;
• cost push: when suppliers costs grow up they need to increase the selling price in order to keep their business profitability. The increase in costs can be determined by new or higher taxes, higher cost of money rates for companies or increased acquisition prices of other resources.

## What is the inflation rate formula and how to calculate inflation?

Probably the most common way to calculate the inflation rate is by tracking the prices of some items over the years (which is called Price Index), then by taking a base year from the period selected and find the relative changes expressed by percentage. Below there is a short list with few price indices you need to be aware of when trying to calculate or speak about inflation:

• Consumer Price Index (CPI) – is a measure of the price of certain goods and services for a specific consumer. CPI is a very used measurement in United States.
• Commodity Price Index – is a measure of the price of certain commodities. It is calculated taking into account the commodity importance share in the calculation (practically there are some items which are much more important than others, which means they will determine price changes much more than the ones less important).
• Cost of Living Index (COLI) – is a measure of the cost to maintain a constant living standard.
• Producer Price Index (PPI) – is a measure of the prices at a wholesale level for all goods and services. This indicator measures the prices the producers have to pay.
• GDP Deflator – is a measure of the prices of all goods and services that are included in Gross Domestic Product.

Few important notices on the above are:

- the price index by itself is not equal to the inflation rate but it can be used to determine the inflation rate.

- in order to calculate CPI there should be established a base year that everything gets compared with, otherwise it is impossible to estimate it.

- the basket of goods taken into account when calculating all these kind of inflation indicators is quite subjective because there is no 100% accurate method to calculate the consumer behavior.

Most used inflation formula is:

IR= (CPI1- CPI0)/CP0*100

Where:

CPI1 = consumer price index for the current year - CPI of the final year

CPI0 = consumer price index for the previous year - CPI for the initial year

Example: let's assume that we need to estimate the inflation rate between 2012 and 2011. The 2012 is the final year and its UD consumer price index (CPI1) is 229.594, while the 2011 is the initial year and its US consumer price index (CPI0) is 224.939. The inflation rate for this example results from this calculation:

IR = (229.594 - 224.939)/224.939*100 = 4.655/224.939*100 = 2.069%.

## What is the CPI for US?

Below there are 2 tables presenting the US inflation rate year by year as a percent change between 1914 and 2014* (Table 1) and the Consumer Price Index evolution between 1913 and 2014* (Table 2).

Table 1

 Year Annual rate Year Annual rate Year Annual rate Year Annual rate 2013 1.47% 1988 4.08% 1963 1.24% 1938 -2.01% 2012 2.07% 1987 3.66% 1962 1.20% 1937 3.73% 2011 3.16% 1986 1.91% 1961 1.07% 1936 1.04% 2010 1.64% 1985 3.55% 1960 1.46% 1935 2.56% 2009 -0.34% 1984 4.30% 1959 1.01% 1934 3.51% 2008 3.85% 1983 3.22% 1958 2.73% 1933 -5.09% 2007 2.85% 1982 6.16% 1957 3.34% 1932 -10.30% 2006 3.24% 1981 10.35% 1956 1.52% 1931 -8.94% 2005 3.39% 1980 13.58% 1955 -0.28% 1930 -2.66% 2004 2.68% 1979 11.22% 1954 0.32% 1929 0.00% 2003 2.27% 1978 7.62% 1953 0.82% 1928 -1.15% 2002 1.59% 1977 6.50% 1952 2.29% 1927 -1.92% 2001 2.83% 1976 5.75% 1951 7.88% 1926 0.94% 2000 3.38% 1975 9.20% 1950 1.09% 1925 2.44% 1999 2.19% 1974 11.03% 1949 -0.95% 1924 0.45% 1998 1.55% 1973 6.16% 1948 7.74% 1923 1.80% 1997 2.34% 1972 3.27% 1947 14.65% 1922 -6.10% 1996 2.93% 1971 4.30% 1946 8.43% 1921 -10.85% 1995 2.81% 1970 5.84% 1945 2.27% 1920 15.90% 1994 2.61% 1969 5.46% 1944 1.64% 1919 15.31% 1993 2.96% 1968 4.27% 1943 6.00% 1918 17.26% 1992 3.03% 1967 2.78% 1942 10.97% 1917 17.80% 1991 4.25% 1966 3.01% 1941 5.11% 1916 7.64% 1990 5.39% 1965 1.59% 1940 0.73% 1915 0.92% 1989 4.83% 1964 1.28% 1939 -1.30% 1914 1.35%

Table 2

 Year CPI Year CPI Year CPI Year CPI 2014 237.43 1989 124.00 1964 31.00 1939 13.90 2013 232.96 1988 118.30 1963 30.60 1938 14.10 2012 229.59 1987 113.60 1962 30.20 1937 14.40 2011 224.94 1986 109.60 1961 29.90 1936 13.90 2010 218.06 1985 107.60 1960 29.60 1935 13.70 2009 214.54 1984 103.90 1959 29.10 1934 13.40 2008 215.30 1983 99.60 1958 28.90 1933 13.00 2007 207.34 1982 96.50 1957 28.10 1932 13.70 2006 201.60 1981 90.90 1956 27.20 1931 15.20 2005 195.40 1980 82.40 1955 26.80 1930 16.70 2004 188.90 1979 72.60 1954 26.90 1929 17.10 2003 184.00 1978 65.20 1953 26.70 1928 17.10 2002 179.90 1977 60.60 1952 26.50 1927 17.40 2001 177.00 1976 56.90 1951 26.00 1926 17.70 2000 172.20 1975 53.80 1950 24.10 1925 17.50 1999 166.60 1974 49.30 1949 23.80 1924 17.10 1998 163.00 1973 44.40 1948 24.10 1923 17.10 1997 160.50 1972 41.80 1947 22.30 1922 16.80 1996 156.90 1971 40.50 1946 19.50 1921 17.90 1995 152.40 1970 38.80 1945 18.00 1920 20.00 1994 148.20 1969 36.70 1944 17.60 1919 17.30 1993 144.50 1968 34.80 1943 17.30 1918 15.10 1992 140.30 1967 33.40 1942 16.30 1917 12.80 1991 136.20 1966 32.40 1941 14.70 1916 10.90 1990 130.70 1965 31.50 1940 14.00 1915 10.10 1914 10.00 1913 9.90

* Please note that the value for 2014 is an intermediary one.

Source of both tables: U.S. Bureau of Labor Statistics

Our specialized inflation calculator takes account of all this official historical data released and is a comprehensive tool because it can perform 3 types of calculations:

• By first tab it can find the purchasing power of an amount of money for two given years.  For instance you can see what purchase power has \$1 in 2010 compared to 2014.
• By second section it can calculate the inflation based on a certain average inflation rate after some years. For instance you can find what purchasing power will \$1 have after 10 years later, at an average CPI rate of 3.5%.
• By third tab it can estimate the purchasing power of money few years ago at a given inflation rate. For instance you can check what was the power of \$1 few years ago at an average CPI rate of 3.5%.

## How to protect against decreasing the purchasing power of the money you save?

There is a single solution to protect your money from getting their purchase power decreased over time, and this is investing in assets and financial instruments that have a return or interest rate above the rate of inflation over a certain number of years.

Please note that the options we further discuss about are for general information purposes only and should not be considered as a financial professional advice. Every investment should be assessed from risk exposure point of view. Such instruments you may find interesting to invest in are bonds, equity funds, money market funds or gold.

30 Dec, 2014 | 0 comments

#### Share your opinion!

Your email address will not be published. Required fields are marked *.