Question 1

What is inflation?

Accepted Answer

Inflation is the rate at which the general level of prices for goods and services rises over time, causing purchasing power to fall. When inflation is 3%, something that cost $100 last year costs $103 today. Inflation is a normal feature of healthy economies, but high or unpredictable inflation can erode savings and disrupt economic planning.

Question 2

How is inflation calculated?

Accepted Answer

Inflation is most commonly measured using the Consumer Price Index (CPI), which tracks the average change in prices paid by consumers for a representative basket of goods and services including food, housing, transportation, and healthcare. The inflation rate is calculated as: ((CPI current − CPI previous) ÷ CPI previous) × 100. The US Bureau of Labor Statistics (BLS) publishes monthly CPI data.

Question 3

What was the US inflation rate in 2024?

Accepted Answer

US inflation (CPI) in 2024 moderated significantly compared to the peak levels seen in 2022. After reaching a 40-year high of around 9.1% in June 2022, inflation declined steadily. In 2024, the annual inflation rate was approximately 2.9%, moving closer to the Federal Reserve's 2% long-term target as monetary tightening took effect.

Question 4

How does inflation affect purchasing power?

Accepted Answer

Inflation erodes purchasing power — meaning your money buys less over time. At 3% annual inflation, $100 today will only have the purchasing power of about $74 in 10 years and $55 in 20 years. This is why keeping large amounts of cash in low-yield savings accounts can result in real losses. Investments that outpace inflation, such as stocks or Treasury Inflation-Protected Securities (TIPS), help preserve or grow purchasing power.

Question 5

What is the difference between CPI and inflation rate?

Accepted Answer

The CPI (Consumer Price Index) is an index number that represents the current price level of a basket of goods relative to a base period. The inflation rate is the percentage change in the CPI over a specific time period (usually one year). In other words, CPI is the measurement tool, and the inflation rate is the result derived from comparing two CPI values. Other inflation measures include the PCE (Personal Consumption Expenditures) index, which the Federal Reserve prefers, and the PPI (Producer Price Index).

Year	Equivalent Value	CPI	Purchasing Power
1980	$100.00	82.4	100.0%
1981	$110.32	90.9	90.6%
1982	$117.11	96.5	85.4%
1983	$120.87	99.6	82.7%
1984	$126.09	103.9	79.3%
1985	$130.58	107.6	76.6%
1986	$133.01	109.6	75.2%
1987	$137.86	113.6	72.5%
1988	$143.57	118.3	69.7%
1989	$150.49	124.0	66.5%
1990	$158.62	130.7	63.0%
1991	$165.29	136.2	60.5%
1992	$170.27	140.3	58.7%
1993	$175.36	144.5	57.0%
1994	$179.85	148.2	55.6%
1995	$184.95	152.4	54.1%
1996	$190.41	156.9	52.5%
1997	$194.78	160.5	51.3%
1998	$197.82	163.0	50.6%
1999	$202.18	166.6	49.5%
2000	$208.98	172.2	47.9%
2001	$214.93	177.1	46.5%
2002	$218.33	179.9	45.8%
2003	$223.30	184.0	44.8%
2004	$229.25	188.9	43.6%
2005	$237.01	195.3	42.2%
2006	$244.66	201.6	40.9%
2007	$251.58	207.3	39.7%
2008	$261.29	215.3	38.3%
2009	$260.32	214.5	38.4%
2010	$264.68	218.1	37.8%
2011	$272.94	224.9	36.6%
2012	$278.64	229.6	35.9%
2013	$282.77	233.0	35.4%
2014	$287.26	236.7	34.8%
2015	$287.62	237.0	34.8%
2016	$291.26	240.0	34.3%
2017	$297.45	245.1	33.6%
2018	$304.73	251.1	32.8%
2019	$310.32	255.7	32.2%
2020	$314.08	258.8	31.8%
2021	$328.76	270.9	30.4%
2022	$355.22	292.7	28.2%
2023	$369.78	304.7	27.0%
2024	$380.46	313.5	26.3%

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