Understanding Inflation's Impact
What is Purchasing Power?
Example:
The Rule of 72
📊 Try the Rule of 72 Calculator
Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Inflation erodes purchasing power because each dollar buys fewer goods and services over time.
At 3% inflation, $10,000 today will have the purchasing power of only $5,537 in 20 years. You've lost 44.6% of your buying power even though you still have $10,000.
Source: Bureau of Labor Statistics - Consumer Price Index for All Urban Consumers (CPI-U), 2024. Purchasing power calculations based on compound inflation effects over time.
A quick way to calculate how long it takes for purchasing power to be cut in half:
Years to Halve = 72 ÷ Inflation Rate
- • At 2% inflation: 72 ÷ 2 = 36 years to lose half
- • At 3% inflation: 72 ÷ 3 = 24 years to lose half
- • At 5% inflation: 72 ÷ 5 = 14.4 years to lose half
- • At 8% inflation: 72 ÷ 8 = 9 years to lose half
Use our interactive Rule of 72 calculator to see how long it takes for your money to double at different interest rates.
Source: Federal Reserve Economic Data (FRED) - Historical inflation rates and purchasing power calculations. The Rule of 72 is a mathematical approximation for compound growth calculations.
{/* Historical Price Shocks */}