Purchasing Power Calculator
Purchasing power is what your money can actually buy, rather than the number printed on it. This calculator shows how much buying power an amount has lost or gained between any two years, using official consumer price index data.
Why the maths is not symmetrical
Suppose prices double. An item that cost $100 now costs $200. Your $100 has not lost 100% of its value, it has lost half. The relationship is that purchasing power equals the starting index divided by the ending index. When prices rise by 25%, purchasing power falls to 1 divided by 1.25, which is 0.80, a loss of 20%.
Worked example
| Measure | Value |
|---|---|
| Amount in start year | $1,000 |
| Cumulative inflation over period | 50% |
| Cost of the same basket today | $1,500 |
| What $1,000 now buys, in start-year terms | $667 |
| Purchasing power lost | 33.3% |
Where purchasing power matters most
Fixed incomes
A pension that does not adjust with prices loses real value every single year. Over a twenty-year retirement even modest inflation can cut real income substantially.
Cash savings
If a savings account pays less than the inflation rate, the balance grows in nominal terms while shrinking in real terms. The account statement looks fine; the buying power is falling.
Wages
A raise below the inflation rate is a real-terms pay cut, however it is described. Comparing the raise percentage against the CPI change over the same period is the only way to tell.
Frequently asked questions
Is purchasing power the same as inflation?
No. Inflation measures how much prices rose. Purchasing power measures the mirror image, how much less a fixed amount of money buys. They are related but the percentages differ.
Does this work for other countries?
Yes, but you need that country's own index. Use the relevant country calculator rather than applying US figures to non-US money.