US Inflation Calculator

Buying Power Calculator - Calculate US Inflation Between Two Dates

Amount: dollars

Reference Year (1913-2025):

Target Year (1913-2025-May):

1. What is the Buying Power Calculator?

Definition: The Buying Power Calculator computes the inflation-adjusted value of a dollar amount between two years, showing how the purchasing power of money changes over time due to inflation. It also compares the amount to average yearly wages to assess affordability. CPI data includes years from 1913 to May 2025.

Purpose: Helps individuals understand how inflation affects the value of money and whether their income keeps pace with rising prices, aiding in financial planning and historical comparisons.

2. How Does the Calculator Work?

The calculator uses the Consumer Price Index (CPI) to adjust dollar amounts for inflation, following these steps and formulas:

Formulas:

$ BP = A \times \frac{CPI_t}{CPI_r} $

$ R_r = \frac{A}{W_r} \times 100 $

$ R_t = \frac{BP}{W_t} \times 100 $

Where:

$ BP $: Buying Power in target year (dollars)
$ A $: Amount in reference year (dollars)
$ CPI_r $: Consumer Price Index in reference year
$ CPI_t $: Consumer Price Index in target year
$ R_r $: Amount as percentage of reference year wage (%)
$ R_t $: Buying Power as percentage of target year wage (%)
$ W_r $: Average yearly wage in reference year (dollars)
$ W_t $: Average yearly wage in target year (dollars)

Steps:

Step 1: Calculate Buying Power ($ BP $). Multiply the amount ($ A $) by the ratio of $ CPI_t $ to $ CPI_r $.
Step 2: Calculate Reference Year Wage Ratio ($ R_r $). Divide the amount by the reference year wage and multiply by 100 (if wage provided).
Step 3: Calculate Target Year Wage Ratio ($ R_t $). Divide the buying power by the target year wage and multiply by 100 (if wage provided).

3. Importance of Buying Power Calculation

Calculating buying power is crucial for:

Financial Planning: Understand how inflation erodes money’s value over time.
Investment Decisions: Assess whether savings or investments outpace inflation.
Historical Comparisons: Compare affordability of goods (e.g., cars) across time relative to income.

4. Using the Calculator

Example (Ford Model T): $ A = \$500 $, $ CPI_r = 9.9 $ (1913), $ CPI_t = 251.107 $ (2018), $ W_r = \$1,300 $ (1913), $ W_t = \$63,179 $ (2018):

Step 1: $ BP = 500 \times \frac{251.107}{9.9} = \$12,682.17 $.
Step 2: $ R_r = \frac{500}{1,300} \times 100 = 38.46\% $.
Step 3: $ R_t = \frac{12,682.17}{63,179} \times 100 = 20.07\% $.
Results: $ BP = \$12,682.17 $, $ R_r = 38.46\% $, $ R_t = 20.07\% $.

In 1913, a Ford Model T ($500) was 38.46% of the average yearly wage ($1,300). In 2018, its equivalent value ($12,682.17) was only 20.07% of the average wage ($63,179), indicating improved affordability despite a higher nominal price ($15,000 for a basic 2018 Ford model).

5. Frequently Asked Questions (FAQ)

Q: What is buying power?
A: Buying power is the value of a dollar amount in a target year, adjusted for inflation using CPI, reflecting how much goods or services it can buy.

Q: Why is buying power important?
A: It shows how inflation affects money’s value and helps compare affordability across time, especially relative to income.

Q: Can buying power increase over time?
A: Yes, if deflation occurs (negative inflation), but typically, inflation reduces buying power unless income grows faster than prices.