Inflation Calculator

Inflation is a general increase in the prices of goods and services, and the inevitable fall of purchasing power of the United States dollar. When an inflation rate is calculated, it’s generally conveyed as a percentage increase in prices over 12 calendar months. The United States’ central bank, The Federal Reserve, aims for a 2% increase in inflation each year.

You can read more about inflation here.

If your current income stays the same while prices go up, you'll feel the effects of inflation. Your current dollar won't stretch as far and you may have to make changes to your budget—as prices of goods go up, you may have to look for alternatives. In theory, salaries and wages should rise to keep up with inflation so that workers can maintain their standards of living.

If your income rises by the same percentage as the inflation rate, your purchasing power doesn’t decrease; it doesn't grow or shrink. If your income rises by a percentage greater than the inflation rate, you'll be able to afford more goods and services without feeling the strain.

If your income decreases or you lose your employment, you will feel the effects of inflation more strongly. Other people who feel the negative effects of inflation are those on a fixed income, or those who hold fixed-income investments because inflation will affect their purchasing and buying power.

Some people actually benefit from inflation. Read this article to learn more about the topic.

Inflation defined is the gradual increase in prices across an entire economy. When inflation rises, consumers need to spend more money to buy the same goods and services. So, you can expect to pay more for goods and services than you normally would, as demand outpacing supply and shortages cause price spikes.

It’s helpful to think about inflation in the context of the value of the United States dollar. As prices rise, each dollar you hold buys fewer goods and services. That’s what’s known as purchasing power—and as the purchasing power of your money declines, the cost of living goes up. It can be an opportune time to reassess your budget, plan to take out a personal loan, or talk to a financial advisor.

Economists often use the term basket of goods which refers to a fixed set of consumer goods or services, and these are the prices of which are used to measure inflation. The basket’s price and its contents are evaluated on a regular basis, allowing governments to track inflation in their country and give consumers an idea of the latest monthly effects of inflation.

The basket of goods is also used to gauge the Consumer Price Index (CPI), which is used to measure the cost of living. For example, if the price of the basket of goods rises by 2% in a year, inflation can be said to be 2%.

Inflation affects all aspects of the economy, including consumer spending, business investments, employment rates, government programs, tax policies, and interest rates. For average urban consumers, prices increase particularly when it comes to the cost of airfare travel, furniture, hotels, new and used automobiles, gas, and everyday essentials like food.

As prices continue to rise and fall, it’s important to pay attention to the cost of goods you’re buying—especially the ones you need to buy month-to-month. To combat higher prices, think of ways to save money such as buying items in bulk, shopping for sales, or swapping a food item for another that is more affordable. With the knowledge of how much more you’re spending, you can make informed decisions about the prices of goods and if you can afford them one month to the next.

Here is a great article about preparing for inflation.