Inflation’s effects have been especially obvious over the past couple of years, thanks to the soaring prices of groceries, gas, rent, and childcare. But even when inflation is low, it can have an impact on your finances.
“Inflation” means the same amount of money will pay for less in the future, and that change can happen quickly or slowly. Either way, unless your pay raises are keeping pace with the rising cost of living, you can expect your purchasing power to erode. To compensate, you may have to downsize your lifestyle or your long-term goals.
A salary inflation calculator is a specialized tool that can help you understand the impact inflation has on your paycheck, from year to year or over decades. Read on for more information on historic and current inflation rates, how to use an inflation calculator to assess your salary, and how to plan for what’s next.
What Is a Salary Inflation Calculator?
A salary inflation calculator can be used to illustrate the effect inflation has on your hard-earned money. It shows you how much buying power your salary (if unchanged) gained or lost from one year to the next. Or you can use it to gauge how well your salary has held up over a period of several years.
For example, you can enter how much you made in December 2021, and calculate how much more that salary would have to be in December 2022 to maintain the same purchasing power. (Although you might not want to know.) Or you can spread the dates out further, from 2012 to 2022.
There are several different versions of salary inflation calculators online. The U.S. Bureau of Labor Statistics (BLS) provides one that’s both reliable and easy to use at https://www.bls.gov/data/inflation_calculator.htm.
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Historical Inflation Rates, Compared
To make its inflation calculations, the BLS uses the Consumer Price Index, which measures the overall change in consumer prices based on a representative basket of goods and services over time. The BLS began collecting spending data in 1917, and with a few tweaks over the years to update its process, continues to do so today.
The table below shows the annual rate of inflation from 1920 to present. The first column notes the year the data was collected; the second column represents the Consumer Price Index for All Urban Consumers (CPI-U) for that year; and the third column shows the annual percent change/annual rate of inflation.
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| Year | Annual Average CPI-U | Annual Percent Change (Rate of Inflation) |
|---|---|---|
| 1920 | 20.0 | 15.6% |
| 1921 | 17.9 | -10.9% |
| 1922 | 16.8 | -6.2% |
| 1923 | 17.1 | 1.8% |
| 1924 | 17.1 | 0.4% |
| 1925 | 17.5 | 2.4% |
| 1926 | 17.7 | 0.9% |
| 1927 | 17.4 | -1.9% |
| 1928 | 17.2 | -1.2% |
| 1929 | 17.2 | 0.0% |
| 1930 | 16.7 | -2.7% |
| 1931 | 15.2 | -8.9% |
| 1932 | 13.6 | -10.3% |
| 1933 | 12.9 | -5.2% |
| 1934 | 13.4 | 3.5% |
| 1935 | 13.7 | 2.6% |
| 1936 | 13.9 | 1.0% |
| 1937 | 14.4 | 3.7% |
| 1938 | 14.1 | -2.0% |
| 1939 | 13.9 | -1.3% |
| 1940 | 14.0 | 0.7% |
| 1941 | 14.7 | 5.1% |
| 1942 | 16.3 | 10.9% |
| 1943 | 17.3 | 6.0% |
| 1944 | 17.6 | 1.6% |
| 1945 | 18.0 | 2.3% |
| 1946 | 19.5 | 8.5% |
| 1947 | 22.3 | 14.4% |
| 1948 | 24.0 | 7.7% |
| 1949 | 23.8 | -1.0% |
| 1950 | 24.1 | 1.1% |
| 1951 | 26.0 | 7.9% |
| 1952 | 26.6 | 2.3% |
| 1953 | 26.8 | 0.8% |
| 1954 | 26.9 | 0.3% |
| 1955 | 26.8 | -0.3% |
| 1956 | 27.2 | 1.5% |
| 1957 | 28.1 | 3.3% |
| 1958 | 28.9 | 2.7% |
| 1959 | 29.2 | 1.08% |
| 1960 | 29.6 | 1.5% |
| 1961 | 29.9 | 1.1% |
| 1962 | 30.3 | 1.2% |
| 1963 | 30.6 | 1.2% |
| 1964 | 31.0 | 1.3% |
| 1965 | 31.5 | 1.6% |
| 1966 | 32.5 | 3.0% |
| 1967 | 33.4 | 2.8% |
| 1968 | 34.8 | 4.3% |
| 1969 | 36.7 | 5.5% |
| 1970 | 38.8 | 5.8% |
| 1971 | 40.5 | 4.3% |
| 1972 | 41.8 | 3.3% |
| 1973 | 44.4 | 6.2% |
| 1974 | 49.3 | 11.1% |
| 1975 | 53.8 | 9.1% |
| 1976 | 56.9 | 5.7% |
| 1977 | 60.6 | 6.5% |
| 1978 | 65.2 | 7.6% |
| 1979 | 72.6 | 11.3% |
| 1980 | 82.4 | 13.5% |
| 1981 | 90.9 | 10.3% |
| 1982 | 96.5 | 6.1% |
| 1983 | 99.6 | 3.2% |
| 1984 | 103.9 | 4.3% |
| 1985 | 107.6 | 3.5% |
| 1986 | 109.6 | 1.9% |
| 1987 | 113.6 | 3.7% |
| 1988 | 118.3 | 4.1% |
| 1989 | 124.0 | 4.8% |
| 1990 | 130.7 | 5.4% |
| 1991 | 136.2 | 4.2% |
| 1992 | 140.3 | 3.0% |
| 1993 | 144.5 | 3.0% |
| 1994 | 148.2 | 2.6% |
| 1995 | 152.4 | 2.8% |
| 1996 | 156.9 | 2.9% |
| 1997 | 160.5 | 2.3% |
| 1998 | 163.0 | 1.6% |
| 1999 | 166.6 | 2.2% |
| 2000 | 172.2 | 3.4% |
| 2001 | 177.1 | 2.8% |
| 2002 | 179.9 | 1.6% |
| 2003 | 184.0 | 2.3% |
| 2004 | 188.9 | 2.7% |
| 2005 | 195.3 | 3.4% |
| 2006 | 201.6 | 3.2% |
| 2007 | 207.3 | 2.9% |
| 2008 | 215.3 | 3.8% |
| 2009 | 214.5 | -0.4% |
| 2010 | 218.1 | 1.6% |
| 2011 | 224.9 | 3.2% |
| 2012 | 229.6 | 2.1% |
| 2013 | 233.0 | 1.5% |
| 2014 | 236.7 | 1.6% |
| 2015 | 237.0 | 0.1% |
| 2016 | 240.0 | 1.3% |
| 2017 | 245.1 | 2.1% |
| 2018 | 251.1 | 2.4% |
| 2019 | 255.7 | 1.8% |
| 2020 | 258.8 | 1.2% |
| 2021 | 271.0 | 4.7% |
| 2022 | 288.6 | 6.5% |
| Data courtesy of the U.S. Bureau of Labor Statistics | ||
How to Calculate Salary Adjusted for Inflation
Probably the easiest way to calculate your income’s buying power adjusted for inflation is to use an online inflation calculator. Simply enter the starting year of your choice, your salary in that year (before or after taxes), and the current year. Then the calculator will do the math for you.
For example, if you made $60,000 in December 2018 and you want to see the inflation-adjusted equivalent for December 2022, just plug in those numbers. The calculator will tell you the inflation-adjusted amount is $70,881.69.
What does that mean for you? In a perfect world, companies help valued employees combat inflation with appropriate annual pay increases. If you haven’t had a pay bump since 2018 and you’re ready to talk to your employer about a raise, you might mention that $70,881.69 is the minimum it would take to keep up with the increased cost of living. And if you’re in a field where employers are offering competitive pay and benefits to attract good candidates, you might be able to negotiate for even more.
What Is Inflation and How Does It Work?
Inflation occurs when the cost of goods and services increases — not in just one or two categories, but across the economy — and consumers’ buying power decreases. As a result, it becomes necessary to earn more just to maintain the same standard of living.
A mild to moderate inflation rate is considered healthy for the economy. It can encourage consumers to buy now rather than later if they expect prices could go higher. Factories may produce more to meet demand from stores that are selling more. Hiring and wages tend to go up. And more people may be motivated to invest their money to grow it for the future.
The Federal Reserve’s target inflation rate is 2% over the long term, and the U.S. hadn’t strayed far from that so-called “sweet spot” for decades — until recently. A number of factors can cause inflation to increase to an uncomfortable level, and thanks to a pandemic-related perfect storm (supply chain issues, stimulus payments, soaring gas prices, and an employment rollercoaster), that’s where we are now.
Still, the U.S. economy isn’t anywhere close to hyperinflation, when prices rise uncontrollably, typically at rates of more than 50% per month.
How Is Inflation Calculated?
The BLS and the Bureau of Economic Analysis (BEA) both track inflation, and use similar methods and formulas. But because the data they use comes from different sources, their results aren’t the same.
• The BLS calculates Consumer Price Index (CPI) inflation by tracking what Americans are actually buying. The government uses the CPI to make inflation-related adjustments to certain federal benefits, such as Social Security.
• The BEA calculates Personal Consumption Expenditure (PCE) inflation using information reported by the companies that sell goods and services instead of the consumers who purchase them. The Federal Reserve focuses more on PCE inflation, but also considers other economic data when setting monetary policy.
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How Inflation Impacts You
High inflation can have an immediate impact on your budgeting and spending, and no one likes that much. But your feelings about whether inflation is good or bad may depend on where you are in life and how your overall finances are affected.
• If you’re a first-time homebuyer, for example, higher prices and rising mortgage rates could be pushing your dream out of reach.
• People with high credit card debt can be negatively affected by inflation. As the Federal Reserve continues to raise the federal funds rate in an effort to cool the economy, borrowers can expect the annual percentage rate (APR) on their revolving credit to increase.
• Savers, on the other hand, may benefit as financial institutions slowly begin offering a higher annual percentage yield (APY) on savings accounts, money market accounts, and certificates of deposit.
• That may sound like especially good news to risk-averse retirees looking for a safe investment. But retirees on a fixed income are typically among the first to feel the painful squeeze of inflation.
• So are small business owners, who often have to deal with higher costs for goods and services, employees who want cost-of-living increases, and customers who aren’t happy when their prices go up to cover those expenses.
• Homeowners may not like the high prices they encounter when shopping for goods and services. But on the plus side, inflation may be pushing up the value of their home and their home equity. And if they have a fixed-rate mortgage, they may find some comfort in knowing they’re paying less for that loan than they did when they took it out.
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The Takeaway
Using a salary inflation calculator can help consumers understand how the rising cost of living might affect their finances. If paychecks can’t keep up with the cost of living, they might have to downsize, adjust their plans, or practice financial minimalism for a while.
Inflation can be calculated in different ways, depending on the organization and its purpose. For instance, the Bureau of Labor Statistics (BLS) measures inflation by the Consumer Price Index (CPI), which tracks household purchases. The information is used to make adjustments to federal benefits such as Social Security.
If inflation is affecting your bottom line, SoFi’s money tracker app can help you get a better handle on your budget. Set up spending categories, track your money, and monitor your credit score. All in one place, and at no cost.
FAQ
What will $100,000 be worth in 10 years with inflation?
It’s difficult to predict what $100,000 could be worth 10 years from now without knowing what inflation will look like in the future. But let’s say the average inflation rate levels out to a moderate 3% over the next decade. If that’s the case, it will take about $134,392 in 2033 to have the same buying power as $100,000 has in 2023.
How much would $50,000 in December 2018 be worth in December 2022 with inflation?
If you had $50,000 in December 2018, it would take about $59,068 to have the same purchasing power in December 2022.
What is $120,000 in 2000 worth today?
If you made $120,000 in 2000, you’d have to make $204,688 to have the same buying power today.
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