Glossary
Inflation
The general rise in prices over time, which steadily reduces what each dollar buys — roughly 2–3% per year in the US long term.
Inflation is the economy-wide rise in prices over time — equivalently, the steady shrinking of what each dollar buys. It’s measured in the US by the Bureau of Labor Statistics’ Consumer Price Index (CPI), which tracks a weighted basket of goods and services monthly; the Federal Reserve explicitly aims for about 2% per year over the long run.
The rate sounds small until you let it compound. At 2.5%, prices double roughly every 28 years (the rule of 72: 72 ÷ rate ≈ doubling time). A retirement plan written in today’s dollars but funded thirty years from now must clear a bar twice as high — the most common silent error in long-horizon planning.
Practical implications: cash and low-yield accounts lose purchasing power with perfect safety whenever their rate trails CPI; long-term investments should be judged by their real (after-inflation) return, historically about 7% for broad US stocks; and fixed-rate debt gets cheaper in real terms every year, which quietly benefits mortgage holders.
Your personal inflation rate differs from CPI depending on what you buy — housing-heavy and healthcare-heavy budgets have run hotter than the headline. See the erosion on your own numbers with the inflation calculator.
Related calculators
- Inflation CalculatorSee what inflation does to your money: future cost of today's expenses and what a dollar amount will really buy in 10, 20, or 30 years.
- Retirement CalculatorProject your retirement savings with employer match, annual raises, and inflation. See your nest egg in today's dollars, year by year.