Inflation Calculator: Charting the Impact on Investments
Inflation can be bad news for investors. Because of rising prices on goods and services, it means today's dollar won't buy as much down the road. In other words, it reduces your future purchasing power.
Can You Keep Up?
What’s the Calculator Calculating?
Get the basics on how inflation is measured and what it means for your money.
How Is Inflation Calculated?
The basic formula to figure out price inflation (or deflation) is this:
(Price B - Price A) ÷ Price A x 100 = inflation rate.
Let’s use a real-world example. The price for a dozen grade A eggs was about $2 in January 2022, according to U.S. Federal Reserve Economic Data.1 By January 2023, the average price was just shy of $5 for a dozen eggs.
So the rate of inflation for a dozen eggs, using the formula above, is:
5 - 2 = 3
3 ÷ 2 = 1.5
1.5 x 100 = 150
Or, the price of a dozen eggs rose 150% from January 2022 to January 2023.
Historical Inflation Rates
In 2022, U.S. consumers saw the largest inflation increase in 40 years thanks to the impact of the COVID-19 pandemic—which upset global supply chains and added to the costs of goods and services—as well as the war in Ukraine, which buffeted global energy prices.
Inflation topped out at 9.1% in June 2022. From 1923 through 2022, the average annual rate of inflation has been 2.97%.2 The Federal Reserve targets 2% annual inflation in its monetary policy.
Over time, there have been ups and downs. For example, during the Great Depression, there were annual rates of deflation, the worst year being 1932 when annual prices were -10.3%. There was significant inflation during the 1970s and early 1980s, the worst year being 1980 when inflation hit 13.5%. From 1992 through 2020, inflation never rose above 4%. But that all changed when the pandemic struck.
How Are U.S. Inflation Rates Measured?
Of course, the price of eggs does not measure the entire U.S. economy. To measure that, we depend upon the Consumer Price Index (CPI) published by the Bureau of Labor Statistics, which measures the average price increase of a wide basket of goods and services, ranging from groceries and gas to the price of housing and new or used vehicles.
The CPI is reported monthly, and in aggregate shows the base amount required to purchase the same goods and services compared to a year ago.
U.S. Inflation for Goods and Services
Generally speaking, inflation is triggered in two ways: cost-push inflation, when product or service supply decreases yet demand remains high, or demand-push inflation, when consumer desire for the product or service outstrips supply.
Both factors were at play as a result of the COVID-19 pandemic. For example, the cost of eating out increased as a result of fewer restaurant workers (cost-push), while the price of houses skyrocketed as a result of more consumers looking to move (demand-push).
CPI attempts to capture a holistic view of all price increases and decreases among a wide range of consumer goods and services, such as the cost of food and gas, electricity and other utilities, new clothing or electronic goods, a new or used vehicle, a doctor's visit or a lab result, or rent for a home.
In all, the CPI looks at more than 200 categories of expenditures in eight broad categories: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication and other goods and services.
¹Federal Reserve Bank of St. Louis,, “Average Price: Eggs, Grade A, Large (Cost per Dozen) in U.S. City Average.”
²Federal Reserve Bank of Minneapolis, “Consumer Price Index, 1913,” accessed June 2023.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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