Understanding inflation
A dollar that doesn't quite mean what it did.
Inflation is what happens when the same money buys less.
What CPI measures.
The Consumer Price Index tracks the cost of a fixed basket of goods and services — groceries, rent, fuel, healthcare, transport — over time. Year-over-year change in that index is the inflation rate. The basket is reweighted occasionally to reflect changing consumption patterns (more streaming, less cable; more dining out, less canned soup).
Real vs nominal.
A "nominal" amount is the number on the price tag. A "real" amount is that number adjusted for inflation — what it would have bought in some baseline year. A salary that "stays the same" in nominal terms is actually shrinking in real terms. Real numbers are the honest comparison across years.
real = nominal × (CPI base ÷ CPI now)
Why your inflation feels different.
The official CPI is an average across a basket and across a population. If your spending is concentrated in items that rose faster than average — housing in a hot city, college tuition, healthcare — your personal inflation is higher than the headline number. CPI is a benchmark, not a household truth.
Hyperinflation, deflation, stagflation.
Inflation in the low single digits is widely considered healthy. Hyperinflation (Weimar Germany, modern Zimbabwe) destroys savings overnight. Deflation — falling prices — sounds nice but tends to crush borrowers and freeze spending, because money is more valuable tomorrow than today. Stagflation is the unhappy combination of high inflation with stagnant growth.
The constant we use here.
The calculator above uses a flat long-run average. Real inflation varies year by year — some years 1%, some years 8%. For periods that span unusual eras (the 1970s, the early 2020s), the constant overstates or understates the actual change. The Bureau of Labor Statistics CPI tables give the true year-by-year sequence.