This inflation calculator adjusts the purchasing power of a given amount of money for inflation based on the Consumer Price Index as reported by the Bureau of Labor Statistics (BLS) from 1913 to 2011.
The CPI attempts to measure the changes in costs for all goods and services for an average United States household.
It is not calculated back any further than 1913 because inflation was not a consistent problem until the creation of the Federal Reserve at that time.
Inflation: How Does It Affects Our Savings?
What is Inflation? We have heard this so many times but only very few people understand the inflation principle. Inflation is basically an increase of commodity prices and deflation is the decrease of market prices. Inflation is best described using the law of supply and demand. If the demand is high and the supply is low, inflation occurs since the price of the commodity is high. If the supply is high and the demand is low, then it is deflation.
But how does inflation affects you? Inflation affects the buying power of your money. If you have $1 today and the price increase of an apple increased from $1 to $1.25 at the end of the month, then that means your affordability rate decreases. Inflation will simply make you poor if your income will not increase. If you want to know the value of your money few years’ back to project your future investments, the inflation rate calculator above will help you compare the dollar value for a specific year.
How Does Inflation Affects Your Savings Deposit
The calculation of the country’s inflation rate is based on the consumer price index. If inflation occurs, it automatically means that the value of your savings deposit goes down. Inflation may mean you need to increase your investment targets to achieve your goals. To keep up with the inflation, you have to either increase your savings deposit or move your savings to investments with higher interest rates. Inflation is the main reason why equities are better for long-term investments. It is very important that you consider the inflation rate in your financial planning. Failure to include the inflation rate would mostly result to disappointments since you will end up having money that is still not enough for what you have planned for.
How To Cope With The Inflation
As individuals, we cannot control inflation but we can manage ourselves to be able to cope with inflation.
Be Realistic With Your Savings
If you are saving for a goal that requires funding over a longer period, it is important to calculate the specific amount you require and factor the projected inflation in your calculation. Use also a more realistic rate of return for your investments when you do your calculations. There are lots of calculators available in the internet that will help you with your calculations. Inflation can greatly affect your future savings. Do your homework and do your calculations realistically to be able to achieve your goals.
Inflation Calculator Terms and Definitions
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