# Inflation Calculator

## Inflation Calculator with U.S. CPI Data

Calculates the equivalent value of the U.S. dollar in any year from 1914 to 2018. Calculations are based on the average annual CPI data in the U.S. from 1914 to 2017.

## Result

\$3995 in 1984 has the same purchasing power as \$9,841.09 in 2018.
The total inflation rate from 1984 to 2018 is 146.33519%.
The average inflation rate from 1984 to 2018 is 2.68700%.

 in 201820172016201520142013201220112010200920082007200620052004200320022001200019991998199719961995199419931992199119901989198819871986198519841983198219811980197919781977197619751974197319721971197019691968196719661965196419631962196119601959195819571956195519541953195219511950194919481947194619451944194319421941194019391938193719361935193419331932193119301929192819271926192519241923192219211920191919181917191619151914 = \$9,841.09 in 201820172016201520142013201220112010200920082007200620052004200320022001200019991998199719961995199419931992199119901989198819871986198519841983198219811980197919781977197619751974197319721971197019691968196719661965196419631962196119601959195819571956195519541953195219511950194919481947194619451944194319421941194019391938193719361935193419331932193119301929192819271926192519241923192219211920191919181917191619151914

## Forward Flat Rate Inflation Calculator

Calculates an inflation based on a certain average inflation rate after some years.

 with inflation rate % after years = \$1.34392

## Backward Flat Rate Inflation Calculator

Calculates the equivalent purchasing power of an amount some years ago based on a certain average inflation rate.

 with inflation rate % = \$0.74409 years ago
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## Historical Inflation Rate (CPI) for U.S.

In the United States, the Bureau of Labor Statistics publishes the Consumer Price Index (CPI) every month, which can be translated into inflation rate. The following is the listing of the historical inflation rate for the United States (U.S. dollar) since it is available.

 Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual 2017 2.50% 2.74% 2.38% 2.20% 1.87% 1.63% 1.73% 1.94% 2.23% 2.04% 2.20% 2.11% 2.13% 2016 1.37% 1.02% 0.85% 1.13% 1.02% 1.01% 0.84% 1.06% 1.46% 1.64% 1.69% 2.07% 1.26% 2015 -0.09% -0.03% -0.07% -0.20% -0.04% 0.12% 0.17% 0.20% -0.04% 0.17% 0.50% 0.73% 0.12% 2014 1.58% 1.13% 1.51% 1.95% 2.13% 2.07% 1.99% 1.70% 1.66% 1.66% 1.32% 0.76% 1.62% 2013 1.59% 1.98% 1.47% 1.06% 1.36% 1.75% 1.96% 1.52% 1.18% 0.96% 1.24% 1.50% 1.47% 2012 2.93% 2.87% 2.65% 2.30% 1.70% 1.66% 1.41% 1.69% 1.99% 2.16% 1.76% 1.74% 2.07% 2011 1.63% 2.11% 2.68% 3.16% 3.57% 3.56% 3.63% 3.77% 3.87% 3.53% 3.39% 2.96% 3.16% 2010 2.63% 2.14% 2.31% 2.24% 2.02% 1.05% 1.24% 1.15% 1.14% 1.17% 1.14% 1.50% 1.64% 2009 0.03% 0.24% -0.38% -0.74% -1.28% -1.43% -2.10% -1.48% -1.29% -0.18% 1.84% 2.72% -0.34% 2008 4.28% 4.03% 3.98% 3.94% 4.18% 5.02% 5.60% 5.37% 4.94% 3.66% 1.07% 0.09% 3.85% 2007 2.08% 2.42% 2.78% 2.57% 2.69% 2.69% 2.36% 1.97% 2.76% 3.54% 4.31% 4.08% 2.85% 2006 3.99% 3.60% 3.36% 3.55% 4.17% 4.32% 4.15% 3.82% 2.06% 1.31% 1.97% 2.54% 3.24% 2005 2.97% 3.01% 3.15% 3.51% 2.80% 2.53% 3.17% 3.64% 4.69% 4.35% 3.46% 3.42% 3.39% 2004 1.93% 1.69% 1.74% 2.29% 3.05% 3.27% 2.99% 2.65% 2.54% 3.19% 3.52% 3.26% 2.68% 2003 2.60% 2.98% 3.02% 2.22% 2.06% 2.11% 2.11% 2.16% 2.32% 2.04% 1.77% 1.88% 2.27% 2002 1.14% 1.14% 1.48% 1.64% 1.18% 1.07% 1.46% 1.80% 1.51% 2.03% 2.20% 2.38% 1.59% 2001 3.73% 3.53% 2.92% 3.27% 3.62% 3.25% 2.72% 2.72% 2.65% 2.13% 1.90% 1.55% 2.83% 2000 2.74% 3.22% 3.76% 3.07% 3.19% 3.73% 3.66% 3.41% 3.45% 3.45% 3.45% 3.39% 3.38% 1999 1.67% 1.61% 1.73% 2.28% 2.09% 1.96% 2.14% 2.26% 2.63% 2.56% 2.62% 2.68% 2.19% 1998 1.57% 1.44% 1.37% 1.44% 1.69% 1.68% 1.68% 1.62% 1.49% 1.49% 1.55% 1.61% 1.55% 1997 3.04% 3.03% 2.76% 2.50% 2.23% 2.30% 2.23% 2.23% 2.15% 2.08% 1.83% 1.70% 2.34% 1996 2.73% 2.65% 2.84% 2.90% 2.89% 2.75% 2.95% 2.88% 3.00% 2.99% 3.26% 3.32% 2.93% 1995 2.80% 2.86% 2.85% 3.05% 3.19% 3.04% 2.76% 2.62% 2.54% 2.81% 2.61% 2.54% 2.81% 1994 2.52% 2.52% 2.51% 2.36% 2.29% 2.49% 2.77% 2.90% 2.96% 2.61% 2.67% 2.67% 2.61% 1993 3.26% 3.25% 3.09% 3.23% 3.22% 3.00% 2.78% 2.77% 2.69% 2.75% 2.68% 2.75% 2.96% 1992 2.60% 2.82% 3.19% 3.18% 3.02% 3.09% 3.16% 3.15% 2.99% 3.20% 3.05% 2.90% 3.03% 1991 5.65% 5.31% 4.90% 4.89% 4.95% 4.70% 4.45% 3.80% 3.39% 2.92% 2.99% 3.06% 4.25% 1990 5.20% 5.26% 5.23% 4.71% 4.36% 4.67% 4.82% 5.62% 6.16% 6.29% 6.27% 6.11% 5.39% 1989 4.67% 4.83% 4.98% 5.12% 5.36% 5.17% 4.98% 4.71% 4.34% 4.49% 4.66% 4.65% 4.83% 1988 4.05% 3.94% 3.93% 3.90% 3.89% 3.96% 4.13% 4.02% 4.17% 4.25% 4.25% 4.42% 4.08% 1987 1.46% 2.10% 3.03% 3.78% 3.86% 3.65% 3.93% 4.28% 4.36% 4.53% 4.53% 4.43% 3.66% 1986 3.89% 3.11% 2.26% 1.59% 1.49% 1.77% 1.58% 1.57% 1.75% 1.47% 1.28% 1.10% 1.91% 1985 3.53% 3.52% 3.70% 3.69% 3.77% 3.76% 3.55% 3.35% 3.14% 3.23% 3.51% 3.80% 3.55% 1984 4.19% 4.60% 4.80% 4.56% 4.23% 4.22% 4.20% 4.29% 4.27% 4.26% 4.05% 3.95% 4.30% 1983 3.71% 3.49% 3.60% 3.90% 3.55% 2.58% 2.46% 2.56% 2.86% 2.85% 3.27% 3.79% 3.22% 1982 8.39% 7.62% 6.78% 6.51% 6.68% 7.06% 6.44% 5.85% 5.04% 5.14% 4.59% 3.83% 6.16% 1981 11.83% 11.41% 10.49% 10.00% 9.78% 9.55% 10.76% 10.80% 10.95% 10.14% 9.59% 8.92% 10.35% 1980 13.91% 14.18% 14.76% 14.73% 14.41% 14.38% 13.13% 12.87% 12.60% 12.77% 12.65% 12.52% 13.58% 1979 9.28% 9.86% 10.09% 10.49% 10.85% 10.89% 11.26% 11.82% 12.18% 12.07% 12.61% 13.29% 11.22% 1978 6.84% 6.43% 6.55% 6.50% 6.97% 7.41% 7.70% 7.84% 8.31% 8.93% 8.89% 9.02% 7.62% 1977 5.22% 5.91% 6.44% 6.95% 6.73% 6.87% 6.83% 6.62% 6.60% 6.39% 6.72% 6.70% 6.50% 1976 6.72% 6.29% 6.07% 6.05% 6.20% 5.97% 5.35% 5.71% 5.49% 5.46% 4.88% 4.86% 5.75% 1975 11.80% 11.23% 10.25% 10.21% 9.47% 9.39% 9.72% 8.60% 7.91% 7.44% 7.38% 6.94% 9.20% 1974 9.39% 10.02% 10.39% 10.09% 10.71% 10.86% 11.51% 10.86% 11.95% 12.06% 12.20% 12.34% 11.03% 1973 3.65% 3.87% 4.59% 5.06% 5.53% 6.00% 5.73% 7.38% 7.36% 7.80% 8.25% 8.71% 6.16% 1972 3.27% 3.51% 3.50% 3.49% 3.23% 2.71% 2.95% 2.94% 3.19% 3.42% 3.67% 3.41% 3.27% 1971 5.29% 5.00% 4.71% 4.16% 4.40% 4.64% 4.36% 4.62% 4.08% 3.81% 3.28% 3.27% 4.30% 1970 6.18% 6.15% 5.82% 6.06% 6.04% 6.01% 5.98% 5.41% 5.66% 5.63% 5.60% 5.57% 5.84% 1969 4.40% 4.68% 5.25% 5.52% 5.51% 5.48% 5.44% 5.71% 5.70% 5.67% 5.93% 6.20% 5.46% 1968 3.65% 3.95% 3.94% 3.93% 3.92% 4.20% 4.49% 4.48% 4.46% 4.75% 4.73% 4.72% 4.27% 1967 3.46% 2.81% 2.80% 2.48% 2.79% 2.78% 2.77% 2.45% 2.75% 2.43% 2.74% 3.04% 2.78% 1966 1.92% 2.56% 2.56% 2.87% 2.87% 2.53% 2.85% 3.48% 3.48% 3.79% 3.79% 3.46% 3.01% 1965 0.97% 0.97% 1.29% 1.62% 1.62% 1.94% 1.61% 1.94% 1.61% 1.93% 1.60% 1.92% 1.59% 1964 1.64% 1.64% 1.31% 1.31% 1.31% 1.31% 1.30% 0.98% 1.30% 0.97% 1.30% 0.97% 1.28% 1963 1.33% 1.00% 1.33% 0.99% 0.99% 1.32% 1.32% 1.32% 0.99% 1.32% 1.32% 1.64% 1.24% 1962 0.67% 1.01% 1.01% 1.34% 1.34% 1.34% 1.00% 1.34% 1.33% 1.33% 1.33% 1.33% 1.20% 1961 1.71% 1.36% 1.36% 1.02% 1.02% 0.68% 1.35% 1.01% 1.35% 0.67% 0.67% 0.67% 1.07% 1960 1.03% 1.73% 1.73% 1.72% 1.72% 1.72% 1.37% 1.37% 1.02% 1.36% 1.36% 1.36% 1.46% 1959 1.40% 1.05% 0.35% 0.35% 0.35% 0.69% 0.69% 1.04% 1.38% 1.73% 1.38% 1.73% 1.01% 1958 3.62% 3.25% 3.60% 3.58% 3.21% 2.85% 2.47% 2.12% 2.12% 2.12% 2.11% 1.76% 2.73% 1957 2.99% 3.36% 3.73% 3.72% 3.70% 3.31% 3.28% 3.66% 3.28% 2.91% 3.27% 2.90% 3.34% 1956 0.37% 0.37% 0.37% 0.75% 1.12% 1.87% 2.24% 1.87% 1.86% 2.23% 2.23% 2.99% 1.52% 1955 -0.74% -0.74% -0.74% -0.37% -0.74% -0.74% -0.37% -0.37% 0.37% 0.37% 0.37% 0.37% -0.28% 1954 1.13% 1.51% 1.13% 0.75% 0.75% 0.37% 0.37% 0.00% -0.37% -0.74% -0.37% -0.74% 0.32% 1953 0.38% 0.76% 1.14% 0.76% 1.14% 1.13% 0.37% 0.75% 0.75% 1.12% 0.75% 0.75% 0.82% 1952 4.33% 2.33% 1.94% 2.33% 1.93% 2.32% 3.09% 3.09% 2.30% 1.91% 1.14% 0.75% 2.29% 1951 8.09% 9.36% 9.32% 9.32% 9.28% 8.82% 7.47% 6.58% 6.97% 6.50% 6.88% 6.00% 7.88% 1950 -2.08% -1.26% -0.84% -1.26% -0.42% -0.42% 1.69% 2.10% 2.09% 3.80% 3.78% 5.93% 1.09% 1949 1.27% 1.28% 1.71% 0.42% -0.42% -0.83% -2.87% -2.86% -2.45% -2.87% -1.65% -2.07% -0.95% 1948 10.23% 9.30% 6.85% 8.68% 9.13% 9.55% 9.91% 8.89% 6.52% 6.09% 4.76% 2.99% 7.74% 1947 18.13% 18.78% 19.67% 19.02% 18.38% 17.65% 12.12% 11.39% 12.75% 10.58% 8.45% 8.84% 14.65% 1946 2.25% 1.69% 2.81% 3.37% 3.35% 3.31% 9.39% 11.60% 12.71% 14.92% 17.68% 18.13% 8.43% 1945 2.30% 2.30% 2.30% 1.71% 2.29% 2.84% 2.26% 2.26% 2.26% 2.26% 2.26% 2.25% 2.27% 1944 2.96% 2.96% 1.16% 0.57% 0.00% 0.57% 1.72% 2.31% 1.72% 1.72% 1.72% 2.30% 1.64% 1943 7.64% 6.96% 7.50% 8.07% 7.36% 7.36% 6.10% 4.85% 5.45% 4.19% 3.57% 2.96% 6.00% 1942 11.35% 12.06% 12.68% 12.59% 13.19% 10.88% 11.56% 10.74% 9.27% 9.15% 9.09% 9.03% 10.97% 1941 1.44% 0.71% 1.43% 2.14% 2.86% 4.26% 5.00% 6.43% 7.86% 9.29% 10.00% 9.93% 5.11% 1940 -0.71% 0.72% 0.72% 1.45% 1.45% 2.17% 1.45% 1.45% -0.71% 0.00% 0.00% 0.71% 0.73% 1939 -1.41% -1.42% -1.42% -2.82% -2.13% -2.13% -2.13% -2.13% 0.00% 0.00% 0.00% 0.00% -1.30% 1938 0.71% 0.00% -0.70% -0.70% -2.08% -2.08% -2.76% -2.76% -3.42% -4.11% -3.45% -2.78% -2.01% 1937 2.17% 2.17% 3.65% 4.38% 5.11% 4.35% 4.32% 3.57% 4.29% 4.29% 3.57% 2.86% 3.73% 1936 1.47% 0.73% 0.00% -0.72% -0.72% 0.73% 1.46% 2.19% 2.19% 2.19% 1.45% 1.45% 1.04% 1935 3.03% 3.01% 3.01% 3.76% 3.76% 2.24% 2.24% 2.24% 0.74% 1.48% 2.22% 2.99% 2.56% 1934 2.33% 4.72% 5.56% 5.56% 5.56% 5.51% 2.29% 1.52% 3.03% 2.27% 2.27% 1.52% 3.51% 1933 -9.79% -9.93% -10.00% -9.35% -8.03% -6.62% -3.68% -2.22% -1.49% -0.75% 0.00% 0.76% -5.09% 1932 -10.06% -10.19% -10.26% -10.32% -10.46% -9.93% -9.93% -10.60% -10.67% -10.74% -10.20% -10.27% -10.30% 1931 -7.02% -7.65% -7.69% -8.82% -9.47% -10.12% -9.04% -8.48% -9.64% -9.70% -10.37% -9.32% -8.94% 1930 0.00% -0.58% -0.59% 0.59% -0.59% -1.75% -4.05% -4.62% -4.05% -4.62% -5.20% -6.40% -2.66% 1929 -1.16% 0.00% -0.58% -1.17% -1.16% 0.00% 1.17% 1.17% 0.00% 0.58% 0.58% 0.58% 0.00% 1928 -1.14% -1.72% -1.16% -1.16% -1.15% -2.84% -1.16% -0.58% 0.00% -1.15% -0.58% -1.16% -1.15% 1927 -2.23% -2.79% -2.81% -3.35% -2.25% -0.56% -1.14% -1.15% -1.14% -1.14% -2.26% -2.26% -1.92% 1926 3.47% 4.07% 2.89% 4.07% 2.89% 1.14% -1.13% -1.69% -1.13% -0.56% -1.67% -1.12% 0.94% 1925 0.00% 0.00% 1.17% 1.18% 1.76% 2.94% 3.51% 4.12% 3.51% 2.91% 4.65% 3.47% 2.44% 1924 2.98% 2.38% 1.79% 0.59% 0.59% 0.00% -0.58% -0.58% -0.58% -0.58% -0.58% 0.00% 0.45% 1923 -0.59% -0.59% 0.60% 1.20% 1.20% 1.80% 2.38% 3.01% 3.61% 3.59% 2.98% 2.37% 1.80% 1922 -11.05% -8.15% -8.74% -7.73% -5.65% -5.11% -5.08% -6.21% -5.14% -4.57% -3.45% -2.31% -6.10% 1921 -1.55% -5.64% -7.11% -10.84% -14.08% -15.79% -14.90% -12.81% -12.50% -12.06% -12.12% -10.82% -10.85% 1920 16.97% 20.37% 20.12% 21.56% 21.89% 23.67% 19.54% 14.69% 12.36% 9.94% 7.03% 2.65% 15.90% 1919 17.86% 14.89% 17.14% 17.61% 16.55% 14.97% 15.23% 14.94% 13.38% 13.13% 13.50% 14.55% 15.31% 1918 19.66% 17.50% 16.67% 12.70% 13.28% 13.08% 17.97% 18.46% 18.05% 18.52% 20.74% 20.44% 17.26% 1917 12.50% 15.38% 14.29% 18.87% 19.63% 20.37% 18.52% 19.27% 19.82% 19.47% 17.39% 18.10% 17.80% 1916 2.97% 4.00% 6.06% 6.00% 5.94% 6.93% 6.93% 7.92% 9.90% 10.78% 11.65% 12.62% 7.64% 1915 1.00% 1.01% 0.00% 2.04% 2.02% 2.02% 1.00% -0.98% -0.98% 0.99% 0.98% 1.98% 0.92% 1914 2.04% 1.02% 1.02% 0.00% 2.06% 1.02% 1.01% 3.03% 2.00% 1.00% 0.99% 1.00% 1.35%

The Inflation Calculator utilizes historic CPI data in the United States to determine how much a certain amount is worth adjusted for a different year, whether before or after. Simply enter in an amount and the year it pertains to, followed by the year the inflation-adjusted amount pertains to.

There is also a Forward Flat Rate Inflation Calculator and Backward Flat Rate Inflation Calculator that can be used for theoretical scenarios to determine inflation-adjusted amounts, given preexisting amounts that are adjusted based on the number of years and inflation rates. Historically, inflation rates hover around 3% in U.S., making it a safe assumption. However, feel free to adjust as needed.

### What is Inflation?

Inflation is defined as an increase in the general level of prices, where a fixed amount of money will relatively afford less. When prices rise, each unit of currency has less purchasing power.

The modern consensus among economists is that too much inflation, otherwise known as hyperinflation, is bad. As examples, the countries of Ukraine in the early 1990's and Brazil from 1980 until 1994 endured long periods of hyperinflation where their currencies became essentially valueless. These hyperinflated economies caused terrible hardships for their people; Ukrainians and Brazilians had to cope using stabilized foreign currencies and by stocking up on finite resources with the ability to retain value, such as gold. One of the most well-known examples of hyperinflation was Germany in the 1920s when the government took stimulus measures such as printing money to pay for WWI. This happened in tune with the Allies burdening Germany with 132 billion marks in war reparations. Economic activity crumbled and there were shortages. With too much money and not enough goods and services, prices doubled every 3 days! People lived in poverty or fled the country.

While hyperinflation can cause immense hardship on the economies of most developed countries today, it is considered healthy for them to have moderate levels of inflation from year to year instead. Because consumers' money will be worth less in the future, there is a big incentive in place for consumers to spend instead of stashing away, and when economies are on such steady paths upwards, that is usually a very good thing.

### Why Inflation Occurs

Large, all-encompassing macroeconomic theories about supply and demand make up most of why inflation occurs. When there are gaping imbalances between the supply and demand of goods and services, large scale inflation or deflation can occur.

• Cost-Push inflation – Say for instance, the cost of oil goes up due to some political turmoil. Because so many goods and services depend on oil such as plastics, logistics of goods, and chemicals, their prices will also increase to account for the higher costs associated with doing a business that involves oil as an expense directly or indirectly. This is called Cost-Push inflation.
• Demand-Pull inflation – This sort of inflation happens when consumers' demands become higher than an economy's ability to produce. Because there are not enough goods and services going around for everyone, higher amounts of currency are more readily exchanged for them. This is likely to happen when the Central Bank increases supply of money. This results in lots of available cash, but not enough goods or services to spend it on.
• Built-in inflation – Because all present events are determined by recent historical events, people within an economy will adjust their behavior accordingly. For instance, because they assume the economy to be perpetually mobilizing upward, people spend instead of saving and willingly take on debt-- activities that reinforce further inflation moderately.

A group of economists called the Monetarists believe money supply is the main player in inflation. For instance, the Federal Reserve (The Central Bank in U.S.) can print more money to increase supply or sell T reasury bills to decrease. Public institutions play major roles in stabilizing their respective currencies through monetary policy. Their ideals are based on the Quantity Theory of Money, which states that changes in money supply will change the value of the currency. The Equation of Exchange best illustrates this:

MV = PY

Where:
M = money supply
V = velocity of money, defined as how many times a piece of currency is involved in transfers per year
P = price level
Y = economic output of goods and services

In the Equation of Exchange, total spending (MV) is equal to total sales revenue (PY). V and Y are generally considered constant by economists; the number of transactions a currency goes through a year and the total economic output are certainly less volatile than the money supply or price level. By assuming V and Y to be relatively constant, what's left over are M and P, which gives us the Quantity Theory of Money: change the money supply, and the value of currency will change with it. When the money in circulation increases, so does the price level, vice versa. They do not have an absolute relationship, but they are positively correlated.

### Deflation

While inflation is not an entirely good or bad thing depending on whether it is moderate or severe, deflation, the opposite of inflation, is seldom welcome in any economy. Most economists agree that it is best to avoid deflation, which is defined as a decrease in the general level of prices. Consumers are not incentivized to buy goods and/or services when their money is forecasted to have more purchasing power in the future. This puts the brakes on and reverses what should be upward trending economies, which are synonymous with good-standing economic health. The Great Depression was caused by something called the deflationary spiral. The theory behind a deflationary spiral is that as prices fall for goods and services, there is less profit. With less profit comes less spending. This in turn leads to lower prices for goods and services to entice spending and essentially the deflationary spiral has come full circle. Once economies suffer the fates of these terrible loops, historically, they have been proven to be immensely difficult conditions to recover from. Even until this day, Japan hasn't fully recovered from "the lost decade" of the 1990s, where a real estate bubble burst and subsequent terrible monetary policies sunk the economy into a deflationary spiral.

Deflation is usually the sign of faltering economies and it is best for them to inflate steadily instead.

### How is Inflation Calculated?

In the US, the Department of Labor is tasked with calculating inflation from year to year. Usually, a basket of goods and services on the market are put together and the costs associated with them are compared at various periods. These figures are then averaged and weighed using various formulas and the end result in the US is a number called the Consumer Price Index (CPI).

To find the inflation from January 2016 to January 2017, first look up the CPI for both months. Historical CPI data can be found on The Bureau of Labor Statistics website:

Jan. 2016: 236.916
Jan. 2017: 242.839

Calculate the difference:

242.839 - 236.916 = 5.923

Calculate the ratio of this difference to the former CPI:

5.923/236.916 = 2.5%

The inflation from January 2016 to January 2017 was 2.5%. It is possible to find deflation when calculating for inflation when the CPI for the former period is greater than the latter, resulting in a negative difference.

### Problems with Measuring Inflation

While the example given above to calculate CPI might portray inflation as a simple and easy process, in the real world, measuring true inflation of currencies can prove to be quite difficult.

• Take for instance, the basket of goods and services (and their prices) used to determine inflation from period to period. How do we know that the prices didn't fluctuate based on changes in quality instead?
• Sharp, dramatic rises or falls in prices of certain things can destabilize the situation. For instance, hikes in oil prices will lead to higher inflation, but they are temporary and may create false impressions of higher inflation.
• Different demographics have different inflation rates. High oil prices create higher inflation for truck drivers, but not stay-at-home mothers.
• While CPI is the most widely used index to determine inflation, there are others for more specific purposes. CPI was previously known as HCIP in the EU, Harmonized Consumer Index Prices, until the name was changed. There is also an adjusted version of CPI called CPIH that includes housing costs such as mortgage interest payments. CPIY is essentially CPI without indirect taxes such as VAT and excise duty, useful for determining inflation without tax increases that last just a year. CPILFENS, the Consumer Price Index for All Urban Consumers Less Food and Energy, is considered a less volatile version of CPI because it doesn't have food and energy in its own basket. These things tend to be very volatile in nature, incorrectly documenting inflation. For instance, weather has drastic impacts on food supply, and in turn food prices. Other places around the world use different indices such as WPI (Wholesale Price Index) in the Philippines, and Monetary Union Index of Consumer Prices (MUICP) in the EU.

### How to Cope with Inflation

Inflation is most impactful to people who hold large amounts of liquid cash sitting idle. According to the inflation calculated above for the period between January 2016 to January 2017, for a checking account with \$50,000 at the beginning to sit still will lead to a loss in real value of \$1,250 by period's end. It is therefore evident that when it comes to protecting one's money from inflation, whether moderate or severe, it is generally best to do something other than letting it sit stale. Inflation is the main reason why the conventional advice peddled by financial gurus is not to save, but to spend or invest instead. In a world where currencies are constantly encouraged to slowly decrease in value (moderate inflation), anyone who doesn't keep pace will be left behind, losing their purchasing power. Generally, only in a deflationary scenario would it make sense to save instead of spend or invest.

For many centuries, gold was traditionally viewed as the effective tool against inflation. As a matter of fact, any finite resource containing intrinsic value is viable. Whether it's silver, oil, or land, they fare well in the face of inflation. But gold in particular because of its historical significance in finance and its ease in handling. No one wants to haul around a dirty, heavy barrel of petroleum to barter for goods in the marketplace or care for the maintenance and upkeep of land to retain its value. People still use gold as a form of currency and as an inflation hedge today along with many other things, but for the people who have extraordinary trouble sleeping at night due to inflation, there is one financial instrument that can fully hedge against it.

### TIPS

In U.S., these things are called TIPS, or Treasury Inflation-Protected Securities. They are bonds issued by the U.S. Treasury that specifically provide protection against inflation. Because their values are directly correlated to inflation indices such as the CPI, TIPS act as relatively effective hedges during and against periods of high inflation. They usually only make up very small portions of people's diversified portfolios, but anyone seeking extra protection can choose to allocate more room in their portfolio toward TIPS. Because they have low correlation with stocks, which are usually the bulk of portfolios, they are also great for diversification purposes. TIPS also fully hedge inflation, so their maturities can be extended to earn term premiums without inflation risk, unlike other bonds.