Inflation: Why $100 Today Isn't $100 Tomorrow

Inflation changes purchasing power

Inflation is an increase in the general price level over time. When the general price level rises faster than a person's dollars grow, each dollar buys less; that loss of buying ability is a decline in purchasing power.

Inflation does not mean every price rises by the same percentage. The price of one item can rise, fall, or stay unchanged while the overall price level increases.

How the CPI measures price change

The U.S. Bureau of Labor Statistics publishes the Consumer Price Index. The CPI for All Urban Consumers, or CPI-U, measures average price change over time for a market basket of consumer goods and services for the population it covers.

The CPI is an index, not a dollar price tag. Its base of 1982–84 = 100 sets a reference point. To compare two years, use the ratio of their index values.

According to the BLS annual-average CPI-U table:

• 2015 CPI-U: 237.017
• 2025 CPI-U: 321.943

These are U.S. city average, all-items annual averages. Using annual averages avoids mixing a single month from one year with an annual figure from another.

Reproduce the purchasing-power example

To find the 2025 amount with the same general CPI-based purchasing power as $100 in 2015:

2015 amount × (2025 CPI ÷ 2015 CPI)

$100 × (321.943 ÷ 237.017) = $135.83

Under this CPI-U comparison, a general basket represented by $100 in 2015 corresponds to about $135.83 in 2025. The cumulative index change is:

(321.943 ÷ 237.017 − 1) × 100 = 35.83%

Here is the same method for a smaller amount:

$25 × (321.943 ÷ 237.017) = $33.96

So $25 in 2015 corresponds to about $33.96 in 2025 under the same CPI-U comparison.

Nominal and real change

Nominal change is measured in dollars without adjusting for inflation. Real change adjusts for the change in the price level.

Suppose $1,000 earns 3% during a year:

$1,000 × 1.03 = $1,030

If the relevant price index rises 4% over that same period, the exact real change is:

(1.03 ÷ 1.04) − 1 = −0.0096, or about −0.96%

The balance gained $30 nominally but lost about 0.96% of purchasing power under those assumptions. Subtracting 4% from 3% gives a useful approximation of −1%; dividing the growth factors gives the more precise result.

Why inflation differs across people and goals

CPI-U covers a broad market basket. A teen saving for a used car may face a price path different from the overall CPI. A family spending more on rent or medical care than the CPI population weight may also experience a different personal rate.

For a specific goal, track both:

1. the general price measure, which provides economic context; and
2. the current price of the exact good or service, which determines the amount needed.

Responding without promising a return

Different tools serve different timelines:

• Cash in an eligible insured deposit account can protect nominal principal within applicable insurance limits, but its interest may or may not keep pace with inflation.
• Treasury Inflation-Protected Securities adjust principal using CPI rules, but market value, taxes, timing, and purchase method still matter.
• Stocks have growth potential and can lose money. A diversified stock fund is not guaranteed to beat inflation over a particular period.

Money needed soon should not be exposed to a loss merely to chase a higher return. Match the account or investment to the deadline, need for access, fees, taxes, and ability to accept loss.