The Inflation Rate Formula
Inflation Rate = ((CPI₂ − CPI₁) ÷ CPI₁) × 100
CPI₁ = Previous period CPI | CPI₂ = Current period CPI
Worked Example
Purchasing Power Erosion Over Time
| Years | At 2% Inflation | At 3% Inflation | At 5% Inflation | At 8% Inflation |
|---|---|---|---|---|
| 5 years | $90.57 | $85.87 | $78.35 | $68.06 |
| 10 years | $82.03 | $73.74 | $61.39 | $46.32 |
| 20 years | $67.30 | $54.38 | $37.69 | $21.45 |
| 30 years | $55.21 | $40.10 | $23.14 | $9.94 |
Value of $100 in today's dollars after N years of inflation.
Frequently Asked Questions
What is the inflation rate formula?
Inflation Rate = ((Current CPI − Previous CPI) ÷ Previous CPI) × 100. For example, if CPI was 280 last year and is 291 today: ((291 − 280) ÷ 280) × 100 = 3.93% inflation.
What is CPI and how is it measured?
CPI (Consumer Price Index) measures the average price change of a basket of goods and services — food, housing, transportation, healthcare, etc. The U.S. Bureau of Labor Statistics publishes CPI monthly.
How does inflation affect purchasing power?
At 3% inflation, $100 today buys what $97 buys next year. Over 10 years at 3%, $100 loses about 26% of its purchasing power. Over 30 years, it loses about 57%.
What is the difference between CPI and PCE inflation?
CPI measures what consumers pay. PCE (Personal Consumption Expenditures) measures what businesses charge. The Federal Reserve targets 2% PCE inflation. PCE is typically 0.3–0.5% lower than CPI.
How do I protect my savings from inflation?
Invest in assets that historically outpace inflation: stocks (avg 7% real return), real estate, TIPS (Treasury Inflation-Protected Securities), I-Bonds, and commodities. Cash savings lose value in high-inflation environments.