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See how inflation erodes purchasing power over time and how much you need to maintain the same standard of living.
Real Value = Nominal / (1 + r)^n
Future Cost = Nominal × (1 + r)^n
Where r = annual inflation rate, n = number of years
Inflation is the rate at which the general level of prices rises over time, eroding purchasing power. At 3% annual inflation, $100 today has the purchasing power of about $74 in 10 years.
The US Federal Reserve targets 2% annual inflation as healthy for the economy. Historical US inflation averages about 3% over the long term. High inflation (above 5-7%) significantly erodes savings.
Invest in assets that historically outpace inflation: stocks, real estate, and inflation-protected securities (TIPS). Cash savings in low-yield accounts lose real purchasing power during high inflation periods.
Nominal value is the face value in current dollars. Real value adjusts for inflation, reflecting actual purchasing power. Real values allow meaningful comparisons across different time periods.
The CPI measures the average price change of a basket of consumer goods and services. It is the most commonly used measure of inflation in the United States, published monthly by the Bureau of Labor Statistics.