Connect higher prices with lower purchasing power
Purchasing power describes how much a sum of money can buy. If a representative basket rises from $100 to $103 while cash remains $100, that cash no longer buys the full basket. The percentage price increase and the percentage loss of purchasing power are related, but they are not the same calculation.
Keep nominal and real dollars on the same basis
Nominal amounts are the dollars shown at a future date. Real amounts translate those dollars into the buying power of a reference period. Comparing a future nominal balance directly with today's expenses can make a plan appear stronger than it is.
Use an assumption, not a prediction
A constant inflation rate makes scenarios comparable; it does not forecast each future year. Test a lower, middle, and higher assumption, and remember that housing, healthcare, education, food, and energy can move differently from a broad consumer index.
Example: $100 over ten years
At a constant 3% annual inflation assumption, a $100 purchase today would cost about $134.39 in ten years. A fixed $100 held for those ten years would then have purchasing power of about $74.41 in today's dollars. Both figures describe the same assumed price path from different directions.
What to check before you decide
- One broad inflation rate cannot represent every household expense.
- Do not mix today's expenses with future nominal balances without an inflation adjustment.
Sources behind this guide
These official and primary sources let you verify rules, definitions, and terms that may change.
U.S. Bureau of Labor Statistics — Purchasing power and constant dollars↗U.S. Bureau of Labor Statistics — Consumer Price Index↗