HomeCalculatorGlossarySearchBooks

Inflation

Inflation is usually calculated as the annual change in the Consumer Price Index, available from the Bureau of Labor Statistics. This first calculator uses CPI data to show how things have been going.

 

Date Range

January 1 through December 31
 

 
Results
Annualized Inflation Rate:   %
 

Data: BLS     Pre 1913: Robert Shiller

 

Inflation averaged about 3% annually during the 20th century. It was briefly much higher than that during and right after both world wars, and also during the 1970s (probably due to the government's policy of "printing press financing" - see the government spending diagram for details). Inflation remained low during the boom of the 1990s, which is very encouraging: it shows how a hot economy can create growth in both demand and supply, so that the price level remains stable.

(Note that the early 1890s had very sharp deflation - it was a great time to have money, but a disaster for farmers and anyone else in debt. 1896 is when William Jennings Bryan made his famous cross of gold speech, pleading for a looser monetary policy.)

 

What the Fed Does

People expect that, by regulating the money supply, the Federal Reserve will be able to keep consumer prices stable... and also to keep the economy growing at a reasonable rate and to keep unemployment low. That's already more "goals" than "controls", which would result in some pretty schizophrenic marching orders. For example, if OPEC announces that they plan to cut oil output in order to drive prices up, should the Fed raise interest rates to fight inflation... or see the higher oil prices as a recessionary factor, and maybe even think about lowering interest rates?

To see the answer, just notice that this isn't really a monetary problem: the higher oil prices aren't the result of too much easy money. That means that restricting the money supply wouldn't be a fix, so the Fed won't raise interest rates.

This example shows why energy prices are one of the special indices that get excluded from the Core CPI numbers: energy prices are volatile enough that when they change it doesn't tell you very much about the rate of inflation overall.

 

Food and beverages
Housing
Apparel
Transportation
Medical care
Recreation
Education and communication
Other goods and services
Total CPI
  - Energy
  - Food
Special Indexes
Total CPI  minus  Special Indexes Core CPI

 

(Incidentally: Irving Fisher, who developed the monetary theory that forms the basis of the Fed's operations, is the same person who predicted that the stock market had reached a permanently high plateau... just weeks before the Crash of 1929. These guys are very good, but they aren't wizards.)

 

Inflation Calculator

One place most people will feel the effects of inflation is in their retirement accounts; so this calculator shows what inflation does to the buying power of an investment.

Inputs
Current Principal: $
Years to grow:  
Growth Rate:   %
Inflation Rate:   %
 
Results
Future Value: $
Buying Power in Today's Dollars: $

 

(Also see the risky retirement calculator and the portfolio guidelines page in the index funds article for some calculators that combine inflation with historical stock market returns, plus two classic magazine articles from the 1970s: How Inflation Swindles the Equity Investor by Warren Buffett, and The Death of Equities: How inflation is destroying the stock market.)

Article Contents
GDP Diagram
Government Spending
Tax Cuts
Inflation
Economic Indicators
Books & Links

next

home  |  article  |  glossary  |  calculator  |  about us  |  books