How to use an inflation calculator (and what it really measures)
In July 2015, a book of Forever stamps cost $9.80. By 2025, it cost $14.60. A classic LEGO brick box that sold for $29.99 in 2015 goes for about $40 in 2025—same bricks, same packaging. The product didn’t get any bigger or better; the value of your dollars just shrank. That’s the erosive power of inflation, and it’s sneaky. It eats away at your purchasing power in small bits, until one day, you notice that a lot of it has gone.
Key Points
- An inflation calculator can help you compare prices and purchasing power over time.
- You can use it to evaluate your current income, spending, and investments relative to inflationary trends.
- If used wisely, an inflation calculator can also help you plan for the future.
If you’re concerned about the gradual decay of your dollar’s value, you can track inflation’s cumulative effect with an inflation calculator. Unlike the Consumer Price Index (CPI) or the Personal Consumption Expenditures (PCE) price index, which report month-to-month changes in prices, an inflation calculator shows how your money’s purchasing power has changed over time—whether year-over-year, or over any time period dating back to 1914.
That shift depends on what’s being measured. The Britannica Money inflation calculator (below) looks at CPI, which is based on a broad “market basket” of goods and services. Its numbers are adjusted for seasonal trends as well as changes in quality or utility over time—a process known as hedonic adjustment. Before we dig into those concepts, we’ll start with the basics: using the calculator.
How does an inflation calculator work?
An inflation calculator shows how the purchasing power of money changes over time by adjusting a given currency (the U.S. dollar, for example) for inflation using a price index.
Here’s a simple example: In 1975, the average cost of a candy bar was only 20 cents. Sounds pretty inexpensive, right? But in 2025 dollars, that 20 cents, adjusted for inflation, is equivalent to roughly $1.16, based on the Britannica Money inflation calculator. It turns out that the average cost of a candy bar in 2025 matches this inflation-adjusted figure.
Not all items will match their inflation-adjusted equivalents. Some, like the median cost of a home, will be higher in the same time period, while others, like the cost of a computer, will be much less expensive. The differences in cost from their inflation-adjusted figures can tell you a lot about the state of supply and demand as well as production efficiencies, all of which are useful data when analyzing various aspects of industries and the economy.
CPI: The data set that feeds the inflation calculator
Like most inflation calculators in the U.S., the Britannica Money inflation calculator uses data from the Consumer Price Index (CPI), which is published monthly by the Bureau of Labor Statistics (BLS). The CPI tracks average price changes using a market basket of goods and services that affect consumers the most—from common expenses like food, housing, and health care to bigger purchases like laptops and other tech gadgets.
Measuring inflation with CPI
The Consumer Price Index (CPI) is a measure of living costs based on changes in retail prices. Its standard formula is:
CPI = (cost of basket in current year / cost of basket in base year) * 100
Note that CPI is not the only measure of consumer inflation. There’s also the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, which is similar to the CPI but weighted differently. Then there’s the Producer Price Index (PPI), which measures the prices of goods and services that domestic manufacturers pay to make their products. If manufacturers’ costs increase, they’ll often transfer that cost over to consumers. An increase in PPI can sometimes foreshadow a higher CPI, so it’s definitely worth monitoring. And, finally, there’s the GDP price deflator, which tells you how much of a change in the gross domestic product is due to inflation rather than real production.
Learn more about alternative inflation measures.
The CPI market basket
The CPI weights goods and services based on a market basket that includes 200 categories of goods and services organized into eight major spending areas:
- Food and beverages
- Housing
- Apparel
- Transportation
- Medical care
- Recreation
- Education and communication
- Other goods and services
The BLS keeps this basket relatively consistent, updating the spending weights every two years and making broader revisions when needed. Its aim is to keep a steady benchmark for comparing prices.
The major groupings seem straightforward, but not all categories are as simple or transparent as they seem. For instance, housing is a major CPI component, but it doesn’t measure the actual selling prices of homes. Instead, it measures owners’ equivalent rent—what you would pay for a home you own if you were a renter instead.
The categories help organize price changes into digestible groups, even though tracking the underlying costs—and updating them to reflect shifting tastes and preferences—isn’t quite as simple.
CPI tweaks: Hedonic adjustment and seasonality
Sometimes prices rise because of changes in the quality of a good. For instance, a laptop that cost $1,000 one year may rise to $1,200 the next, a 20% price increase. But it may also feature better memory storage, processor, and screen. In this case, the BLS makes a calculation called a hedonic adjustment, which removes the price increases attributed to better quality. This is also where things can get confusing.
What does “hedonic” mean?
The term hedonic comes from hedonism, the philosophical idea that pleasure is the highest good and ultimate aim of life. Although hedonic adjustment in economics doesn’t deal with pleasure in the philosophical sense, it borrows the word to reflect how people value improvements in quality and functionality—which can increase satisfaction, even if prices stay the same or rise.
For more on the philosophy, see Britannica’s entry on hedonism.
BLS researchers would focus on the components that have changed and come up with a new price that accounts for them. For example, the BLS may revalue last year’s laptop at $1,180 instead (accounting for the storage, processor, and screen), so that this year’s change in price is about 2% instead of 20%. Confusing, yes, and sometimes controversial. Adjusting for quality involves judgment calls about what counts as an improvement. Still, hedonic adjustments have become standard practice.
The BLS also adjusts for seasonal trends where supply and demand tend to ebb and flow throughout the year. For example, gas prices tend to rise in the summer, heating oil prices surge in the winter, and retail sales heat up during the holiday season. To smooth out this predictable volatility, the BLS compares current price movements to past seasonal patterns and strips out those effects. The goal is to show how prices are changing apart from seasonal swings, making month-to-month trends easier to interpret.
Using an inflation calculator
Now that you have a clearer picture of what the inflation calculator measures, here are a few ways you can put it to use:
- Compare prices across time. How much did an item, like a ticket for an amusement park, cost back in the 1990s? When adjusted for inflation, is the item below, above, or on pace with overall inflation?
- Adjust your wages. Is your salary keeping pace with inflation, or is inflation taking more out of what your money can buy? An inflation calculator offers an effective way to measure your relative purchasing power. It can also come in handy when it’s time to negotiate your salary or contract.
- Plan for the future. Accounting for inflation is a key component of any retirement savings plan. Although your Social Security income will have an annual cost-of-living adjustment (COLA) tied to CPI, your expenses may rise faster than your investments can keep up. Make sure you consider historical inflation trends when planning your future, keeping in mind that the past isn’t a guaranteed predictor of future inflation trends.
The bottom line
Prices tend to go up over time, but that doesn’t always mean things are more expensive in a meaningful way. What matters is whether your money buys more, less, or about the same as it used to—especially when compared with the broader market basket economists use to measure inflation. That’s what an inflation calculator can help you see for yourself.
It’s a simple tool, but it can give you a clearer view of your money—whether you’re comparing past prices, checking the value of your paycheck, or planning for the future.