How to Calculate the Inflation Rate (Formula + Examples)
By Shihab Mia July 4, 2026 5 min read
Quick answer
To calculate the inflation rate between two periods, use ((CPI_new minus CPI_old) / CPI_old) x 100. For example, if the Consumer Price Index rises from 290 to 300, the inflation rate is (10 / 290) x 100 = 3.45 percent. The CPI is published monthly by the US Bureau of Labor Statistics (BLS).
Inflation measures how much prices rise over time, which means each dollar you hold buys a little less than it did before. Below you will find the exact formula, a worked example you can copy, a reference chart of what different rates do to your money, and the mistakes people make most often.
What is the inflation rate formula?
The inflation rate is the percentage change in a price index between two dates. The standard formula is:
The formula
Inflation rate = ((CPI_new minus CPI_old) / CPI_old) x 100
Here CPI stands for the Consumer Price Index, a basket of goods and services (food, housing, transport, medical care and more) whose average price is tracked over time. In the United States the CPI is published every month by the Bureau of Labor Statistics at bls.gov. The same percentage change formula works with any price index or even the price of a single item, but the official inflation rate uses the CPI. This is the same kind of percentage change math covered in our guide on how to calculate percentage increase.
How do you calculate the inflation rate step by step?
You calculate the inflation rate by subtracting the old CPI from the new CPI, dividing by the old CPI, and multiplying by 100. Here is the full worked example using a CPI that rises from 290 to 300.
- Find the two CPI values. Take the CPI for your starting period (CPI_old = 290) and your ending period (CPI_new = 300). Both come from the BLS CPI tables.
- Subtract the old from the new. 300 minus 290 = 10. This is the raw change in the index.
- Divide by the old CPI. 10 / 290 = 0.0345. This is the change as a decimal fraction.
- Multiply by 100. 0.0345 x 100 = 3.45 percent. That is your inflation rate for the period.
So prices rose 3.45 percent between those two periods. If you want the annual rate, use the CPI from the same month one year apart (for example June 2025 versus June 2026). Comparing month to month instead gives a monthly rate, which is much smaller.
How does inflation shrink your purchasing power?
Inflation reduces purchasing power by the same factor that prices rise, so when prices go up 3.45 percent, the same amount of money buys about 3.45 percent less. Purchasing power and price are two sides of the same coin: if a basket that cost 100 dollars now costs 103.45 dollars, then 100 dollars buys only about 96.7 percent of what it used to.
To see how this compounds over many years, use the future value formula.
Projecting a future cost
Future value = present amount x (1 + rate) ^ years. Purchasing power falls by the same factor, so what one dollar buys today is worth 1 / (1 + rate) ^ years in the future.
Example: at a constant 3 percent annual inflation rate, something that costs 1,000 dollars today would cost 1,000 x (1.03) ^ 10 = about 1,344 dollars in ten years. Flipping it around, 1,000 dollars kept in cash would buy only about 744 dollars worth of goods in today's terms after that decade. You can skip the arithmetic and run any figure through the inflation calculator. This is the mirror image of compound interest: compounding grows your money, while inflation quietly erodes it.
Inflation rate reference chart
The table below shows what different constant annual inflation rates do to prices and to the buying power of 1,000 dollars over 10 years, using the future value formula above.
| Annual inflation rate | Price of a 1,000 dollar item in 10 years | Buying power of 1,000 dollars in 10 years | Years to roughly double prices |
|---|---|---|---|
| 2 percent | about 1,219 dollars | about 820 dollars | about 35 years |
| 3 percent | about 1,344 dollars | about 744 dollars | about 23 years |
| 5 percent | about 1,629 dollars | about 614 dollars | about 14 years |
| 7 percent | about 1,967 dollars | about 508 dollars | about 10 years |
| 10 percent | about 2,594 dollars | about 386 dollars | about 7 years |
The last column uses the "rule of 70," a shortcut noted by sources such as Investopedia: divide 70 by the inflation rate to estimate how many years it takes for price levels to double. At 7 percent, prices double in roughly 10 years.
Common mistakes when calculating inflation
- Dividing by the new CPI instead of the old. Always divide the change by the earlier value (CPI_old). Dividing by the new value gives a different, wrong answer.
- Mixing time periods. Comparing a June figure to a December figure gives a partial year rate, not an annual one. For the annual rate, use the same month one year apart.
- Confusing the index with a price. A CPI of 300 does not mean anything costs 300 dollars. The index is only meaningful as a ratio between two dates.
- Confusing a lower inflation rate with falling prices. If inflation drops from 5 percent to 2 percent, prices are still rising, just more slowly. Actual falling prices are called deflation (a negative rate).
- Forgetting inflation compounds. Do not add yearly rates together. Use (1 + rate) ^ years so the effect compounds correctly, just like simple versus compound interest.
Good to know: core vs headline inflation
When you read the news, two versions of the number appear. Headline inflation uses the full CPI basket including food and energy. Core inflation strips out food and energy because those prices swing sharply month to month. The BLS publishes both, and central banks often watch core inflation to judge the underlying trend. Neither changes the formula above; they simply use a different basket.
💸 Try the free tool Inflation Calculator Free inflation calculator. Enter an amount, an annual inflation rate and years to see future cost, future purchasing power and cumulative inflation instantly.Once you understand the mechanics, protecting your money is the natural next step. Because cash loses value to inflation every year, keeping savings in interest bearing or growth assets helps them keep pace. See our guides on how much to save for retirement and use the compound interest calculator to model growth that outruns inflation.
Frequently asked questions
What is the formula for the inflation rate?
The inflation rate equals ((CPI_new minus CPI_old) / CPI_old) x 100. You subtract the earlier Consumer Price Index from the later one, divide by the earlier value, then multiply by 100 to get a percentage. For example, a CPI moving from 290 to 300 gives an inflation rate of 3.45 percent.
Where do I find CPI data?
The US Consumer Price Index is published monthly by the Bureau of Labor Statistics at bls.gov, usually mid month for the prior month. You can look up the index value for any month and year, then plug two values into the inflation formula. Other countries publish their own CPI through their national statistics offices.
What is a normal or healthy inflation rate?
Many central banks, including the US Federal Reserve, target around 2 percent annual inflation as a healthy level that supports steady growth without eroding savings too quickly. Rates well above target reduce purchasing power fast, while negative rates (deflation) can signal a weak economy. Two percent is a widely cited benchmark, not a strict rule.
How does inflation affect my savings?
Inflation reduces the buying power of cash by roughly the inflation rate each year. If you earn 1 percent interest while inflation runs at 3 percent, your real return is about negative 2 percent, so your money buys less over time. To keep pace, savers often use interest bearing accounts, bonds, or diversified investments that aim to beat inflation.
What is the difference between inflation and deflation?
Inflation is a general rise in prices over time, giving a positive rate, while deflation is a general fall in prices, giving a negative rate. A slowing inflation rate (disinflation) still means prices are rising, just more slowly. True deflation, when prices actually drop, is less common and can signal weak demand in the economy.
How do I project a future price using inflation?
Use future value = present amount x (1 + rate) ^ years. At 3 percent inflation, a 1,000 dollar item costs 1,000 x (1.03) ^ 10, or about 1,344 dollars, in ten years. Purchasing power falls by the same factor, so 1,000 dollars in cash would buy only about 744 dollars worth of goods in today's terms.