How to Calculate Inflation: Converting Past Dollars to Today

Have you ever heard someone say, “Back in my day, a movie ticket cost a nickel!”? While that sounds impressive, it ignores one key economic force: Inflation.

Inflation is the gradual increase in prices over time, which erodes the purchasing power of money. To compare costs or salaries across different eras fairly, you must adjust for inflation.

In this guide, we’ll show you the formula economists use and how to calculate it instantly with our Free Inflation Calculator.

The Inflation Formula

To adjust a past dollar amount to today’s value, you need the Consumer Price Index (CPI) for both years. The CPI is a number tracked by the government that represents the cost of a standard basket of goods.

Formula: $Value_{Today} = Value_{Past} \times \left( \frac{CPI_{Today}}{CPI_{Past}} \right)$

Example: The $10,000 Salary in 1980

Let’s say your grandfather earned $10,000 in 1980. What is that worth in 2026?

1. Find CPI for 1980: 82.4
2. Find CPI for 2026: 320.5 (estimated)
3. Divide: 320.5 / 82.4 = 3.89 (This is the “Inflation Factor”)
4. Multiply: $10,000 x 3.89 = $38,900

So, a $10,000 salary in 1980 bought the same amount of goods as a $38,900 salary today.

Calculating Cumulative Inflation Rate

How much have prices risen in total percentage terms?

Formula: $\text{Total Inflation} \ \% = \left( \frac{CPI_{End} - CPI_{Start}}{CPI_{Start}} \right) \times 100$

Using the example above: (320.5 - 82.4) / 82.4 = 2.89 2.89 x 100 = 289% Total Inflation

This means prices nearly tripled over those 46 years.

Real-World Inflation Examples

The Coffee Shop Reality Check

A cup of coffee cost $0.75 in 1990. Using the CPI adjustment:

• 1990 CPI: 130.7
• 2026 CPI: 320.5
• Inflation Factor: 320.5 / 130.7 = 2.45
• Expected Price Today: $0.75 x 2.45 = $1.84

But in reality, a coffee at Starbucks costs around $5.00 today. Why the discrepancy? The coffee industry has seen price increases beyond general inflation due to:

• Premium branding
• Higher labor costs in service industries
• Rent increases in urban areas
• Quality improvements (specialty beans, barista training)

The Housing Market Story

A median home cost $79,100 in 1990. Adjusted for inflation:

• Expected Price Today: $79,100 x 2.45 = $193,800
• Actual Median Price (2026): $420,000

Housing has outpaced inflation by 117%, making it one of the biggest financial challenges for younger generations.

The Tech Exception

Meanwhile, some technology has gotten cheaper:

• A basic calculator cost $50 in 1980 ($194 in today’s dollars)
• Today’s free smartphone calculator app: $0

Technology demonstrates negative inflation in many categories, as mass production and competition drive prices down.

Understanding Different Types of Inflation

Core Inflation vs. Headline Inflation

• Headline Inflation: The total CPI change including volatile food and energy prices
• Core Inflation: Excludes food and energy to show underlying trends

In 2026, headline inflation might be 3.2%, but core inflation could be 2.8%. The Federal Reserve focuses more on core inflation for policy decisions.

Annual vs. Cumulative Inflation

If inflation is 3% per year, it doesn’t mean 30% over 10 years. It compounds:

Year 1: $100 → $103 Year 2: $103 → $106.09 Year 3: $106.09 → $109.27 … Year 10: $134.39 (34.4% total increase, not 30%)

Use this formula for compound inflation: $\text{Future Value} = \text{Present Value} \times (1 + r)^n$

Where r is the annual rate and n is the number of years.

Why This Matters

Salary Negotiations

If you haven’t received a raise that matches inflation (e.g., 3% per year), you essentially took a pay cut.

Example: You earned $50,000 in 2020. With 3% annual inflation, you need $56,477 in 2026 to maintain the same purchasing power. If your salary is still $50,000, you’ve lost $6,477 in real income.

Investments

If your savings account pays 1% interest but inflation is 3%, you’re losing real wealth every year.

The Math:

• Starting Balance: $10,000
• After 1 Year with 1% Interest: $10,100
• Inflation-Adjusted Value: $10,100 / 1.03 = $9,806

You’ve lost $194 in purchasing power despite earning “interest.”

Retirement Planning

Inflation is the silent killer of retirement savings. If you need $50,000 per year today, you’ll need:

• In 10 years: $67,196 (at 3% inflation)
• In 20 years: $90,306
• In 30 years: $121,363

Most retirement calculators fail to account for this, leading retirees to run out of money.

Historical Context

Understanding that a “millionaire” in 1920 is equivalent to having $15 million today changes how you view history.

Famous Historical Prices Adjusted for 2026:

• Model T Ford (1920): $850 → $12,750 today
• Harvard Tuition (1950): $600 → $7,500 today
• Actual Harvard Tuition (2026): $57,000 (659% above inflation)
• Median Income (1970): $9,870 → $74,500 today
• Actual Median Income (2026): $75,000 (barely kept pace)

When to Use Inflation Adjustments

Good Use Cases

1. Comparing Historical Salaries: Did teachers earn more in the 1960s than today?
2. Real Estate Analysis: Has your home appreciated faster than inflation?
3. Lawsuit Settlements: Adjusting damages for past lost wages
4. Business Projections: Forecasting future costs for budgeting

Bad Use Cases

1. Stock Market Returns: Use real returns (already adjusted) instead
2. Personal Debt: Your mortgage payment doesn’t increase with inflation (that’s why it gets “easier” over time)
3. Collectibles: Art, classic cars, and antiques don’t follow CPI patterns

Inflation by Category (2026 Data)

Not all prices inflate equally. Here’s how different sectors have changed since 2000:

Category	Cumulative Inflation	Annual Average
College Tuition	+180%	+3.9%
Medical Care	+120%	+3.1%
Housing	+95%	+2.6%
Food	+85%	+2.4%
Overall CPI	+82%	+2.3%
Clothing	+15%	+0.5%
Electronics	-75%	-5.1%

What This Means For You

For Employees

Ask for at minimum a 3% annual raise just to stay even. Anything less is a pay cut.

For Retirees

Plan for at least 2.5% annual inflation. A safe withdrawal rate must account for this.

For Business Owners

Price your products to include future cost increases. If your costs rise 4% but you only raise prices 2%, your margins shrink every year.

For Investors

Aim for returns above inflation + taxes. If inflation is 3% and you’re in a 25% tax bracket, you need 4% returns just to break even.

Use the Calculator

You don’t need to look up CPI tables manually. Our Inflation Calculator has data from 1913 to 2026 built-in. Just enter the amount and years to see the purchasing power change instantly.

Frequently Asked Questions

Why does inflation feel higher than the official CPI?

The CPI measures an average basket of goods, but your personal spending might differ. If you spend heavily on healthcare or education (high inflation), it hurts more than the CPI suggests.

Can inflation be negative?

Yes, that’s called deflation. It happened during the Great Depression (1929-1933) when prices fell 24%. While lower prices sound good, deflation devastates economies by encouraging hoarding and increasing real debt burdens.

How is CPI calculated?

The Bureau of Labor Statistics surveys 80,000 items monthly across eight major categories: food, housing, apparel, transportation, medical care, recreation, education, and other goods. They track price changes and weight them by typical consumer spending.

Does Social Security adjust for inflation?

Yes. Social Security benefits receive annual Cost of Living Adjustments (COLA) based on CPI data. For 2026, the COLA was 2.5%.

What’s the difference between CPI and inflation?

CPI is the index number. Inflation is the percentage change in CPI over time. They’re related but not identical: CPI for 2026 might be 320.5, while the inflation rate from 2025 to 2026 is 2.5%.