Why a dollar buys less every year, why some prices rise faster than others, and what the government's official number actually measures. General information, not financial or investment advice.
The short version: inflation is the rate at which prices, on average, rise over time — which means the same dollar buys a little less each year. The U.S. government tracks it with the Consumer Price Index (CPI): every month, it prices out a fixed "basket" of the goods and services a typical household buys, and compares that total to the same basket a year earlier. Not every price moves the same amount. Some categories, like medical care, have risen much faster than prices overall; others, like clothing, have barely risen at all, or even gotten cheaper. That's why "how much did prices actually go up" depends a lot on what you're buying.
What CPI actually measures
A basket of goods, priced out every month, for over a century.
The Bureau of Labor Statistics (BLS) builds the Consumer Price Index by pricing a fixed "basket" of goods and services — groceries, rent, gasoline, doctor visits, clothing, and hundreds of other items — based on what a typical urban household actually spends money on. Every month, BLS collects prices on that same basket and turns the total into a single index number. Compare that number to itself at an earlier date, and you get the change in prices over that period — which is what "inflation" usually refers to.
The index doesn't mean anything by itself; only the ratio between two dates does. That's also why this page and the inflation calculator only ever compare a category to itself at two different years, never one category's raw number to another's — they're built on different base periods, so comparing raw numbers across categories directly would be meaningless.
All items (CPI-U), cumulative change since 1913
A dollar in 1913 costs about $32.52 today — prices are up roughly 3,150% over 112 years. Notice the line isn't a smooth curve: it dips slightly in the 1920s and drops sharply in the early 1930s (deflation during the Great Depression, one of the few sustained periods where the index actually fell), then climbs at very different speeds across the decades since. Hover any point for the exact cumulative change through that year.
Why prices don't all rise the same
Manufactured goods got relatively cheaper. Services got a lot more expensive.
"Inflation" as a single number is an average across hundreds of very different things, and that average hides a lot of spread. Broadly, categories where machines and global trade drove down the cost of making things — like clothing — rose much more slowly than prices overall, and apparel prices are barely higher today than in the 1990s. Categories that are mostly paid labor and are hard to automate or import — medical care being the clearest example — rose far faster than the overall average, year after year, compounding into an enormous gap over decades. Economists sometimes call this pattern "cost disease": labor-intensive services can't get more efficient the way factories can, so their relative cost keeps climbing.
Medical care
All items
Apparel
Same starting line, 1935, the earliest year both medical care and apparel have BLS data. By 2025, medical care is up roughly 5,590% — more than double the overall average — while apparel is up about 530%, well below it. Try the same comparison for other categories and time ranges on the inflation calculator.
Inflation isn't always steady
The rate itself moves around a lot, year to year.
Rather than a fixed pace, the year-over-year inflation rate swings with oil shocks, wars, recessions, and how central banks respond to all of it. The clearest example in this data is the late 1970s and early 1980s: oil supply shocks pushed inflation into double digits, peaking around 13.5% in 1980, before the Federal Reserve under Paul Volcker raised interest rates sharply enough to force it back down within a few years — at the cost of a deep recession. More recently, inflation fell to nearly zero (and briefly went negative) during the 2008–2009 financial crisis, then spiked again in 2021–2022 as demand rebounded from the pandemic faster than supply chains could keep up.
Year-over-year change, All items CPI
Year-over-year change in the All items index, 1961 to 2025. The late-1970s/early-1980s spike and the post-pandemic 2021–2022 spike both stand out clearly; so does the near-zero reading around the 2008–2009 financial crisis. Hover any point for the exact rate that year.
13.5%
Peak year-over-year rate, 1980
−0.4%
Lowest reading, 2009
8.0%
Post-pandemic peak, 2022
Real vs. nominal value
The number on your paycheck isn't the same as what it can buy.
"Nominal" value is the actual dollar figure — what's printed on your paycheck, or in your bank balance. "Real" value adjusts that figure for inflation, showing what it's actually worth in another year's prices. The two only match at a single point in time; everywhere else, they diverge, and the gap grows the longer the time period.
A concrete example, using real CPI data: imagine a salary was $50,000 in 2000 and never got a single raise through 2025. In nominal terms, it's still exactly $50,000. But prices overall rose about 87% over those 25 years, so in real terms, that salary would need to reach about $93,500 in 2025 just to buy what $50,000 bought in 2000. A salary that stayed flat in nominal dollars actually got a real pay cut of nearly half, without a single number on the paycheck ever going down. This is exactly the calculation the inflation calculator above does for any amount, category, and pair of years.
Common misconceptions
A few things people often get backwards.
"0% inflation would be ideal."
Most central banks, including the Federal Reserve, actually target a small positive rate (commonly cited around 2% a year), not zero. A little inflation gives the central bank room to cut interest rates during a downturn without hitting zero, and it avoids the problems that come with deflation (see below).
"Falling prices (deflation) would obviously be good for everyone."
Sustained deflation is generally treated by economists as more dangerous than mild inflation. If prices are expected to keep falling, people and businesses delay spending and investment (why buy now if it'll be cheaper later?), which can slow the economy and cause the kind of downward spiral seen in the Great Depression, visible as an actual price decline in the very first chart on this page.
"The official inflation rate is what everyone experiences."
CPI is a national average across a broad basket. Your own "inflation rate" depends entirely on what you actually buy — someone spending heavily on medical care or housing has experienced meaningfully faster price growth than the headline number for decades; someone buying mostly clothing and electronics has experienced much slower growth. Same average, very different reality depending on the mix.
"Higher wages are automatically a raise."
Only if wages rise faster than inflation. A 3% raise during a year of 5% inflation is a real pay cut, even though the number on the paycheck went up — exactly the nominal-versus-real distinction above.
Quick check
Five questions to see what stuck.
Nothing is saved or sent anywhere; this just checks your answers in the page itself.
1. What does the Consumer Price Index (CPI) actually measure?
2. Based on the categories chart above, which grew the most since 1935?
3. If your salary stays exactly the same dollar amount for 10 years while prices rise, what's true?
4. According to this page, why don't most economists want 0% inflation?
5. Why can a raw CPI index number for Housing not be compared directly to the raw index number for Recreation?
Where this comes from
All figures and charts
BLS Consumer Price Index for All Urban Consumers (CPI-U), U.S. city average, not seasonally adjusted, annual averages — the same real dataset behind the inflation calculator. Every number on this page is computed directly from that data, not estimated separately.
Historical context (1970s/80s, 2008, 2020s)
General, well-established U.S. economic history (oil shocks, Federal Reserve policy under Paul Volcker, the 2008 financial crisis, the post-pandemic recovery); the specific rate figures shown are calculated from the CPI data above, not a separate source.
This page explains how inflation and CPI generally work; it isn't financial, investment, or economic policy advice.