What it is, why it matters, how to beat it
Inflation is the rate at which prices increase over time. When inflation is 3%, a loaf of bread that cost $3.00 last year costs $3.09 this year.
Your money loses purchasing power. $100 today buys less than $100 did 10 years ago.
2015: $3.50 for a latte
2025: $5.50 for the same latte
That's 57% inflation in 10 years (4.6% annual rate)
CPI (Consumer Price Index) — Tracks prices of a "basket" of goods and services: housing, food, transportation, healthcare, etc.
The national CPI is an average. Your personal inflation rate depends on what you actually buy.
If you don't own a car, gas prices don't affect you as much. If you rent, housing inflation hits differently than if you own. Calculate your personal rate →
Savings lose value — $10,000 under your mattress becomes $8,200 in purchasing power after 10 years at 2% inflation.
Wages often lag — If inflation is 4% and your raise is 2%, you're effectively earning less.
Debt becomes cheaper — Fixed-rate debt like a mortgage becomes easier to pay off with inflated dollars.
Inflation is why your grandparents talk about buying a house for $15,000. That same house might cost $400,000 today — but wages didn't grow 27x.
1. Invest, don't just save — Savings accounts pay ~4% but inflation is ~3%. You're barely keeping up. Stocks average ~10% historically.
2. Own assets — Real estate, stocks, even collectibles tend to appreciate with inflation. Cash loses value.
3. Fixed-rate debt — A 3% mortgage when inflation is 4% means the bank is effectively paying you 1%.
4. Increase income — Negotiate raises that beat inflation. Switch jobs if needed.
Divide 72 by inflation rate to see when your money loses half its value.
Your savings lose half their purchasing power in 24 years at 3% inflation.
1970s: 13% inflation — Prices doubled every 5-6 years
1980s-2019: 2-4% inflation — Stable, predictable
2021-2023: 7-9% inflation — Highest in 40 years
2024-2025: 2.5-3% inflation — Normalizing but still above target