Glossary term
Inflation
Inflation is the general rise in prices over time, which reduces how much a dollar can buy. In the US it is most often measured by the Consumer Price Index, published monthly by the Bureau of Labor Statistics. When your savings earn less than inflation, their purchasing power shrinks even though the dollar balance grows.
Updated October 17, 2026 · Editorial Team
How Inflation works in practice
The CPI tracks the cost of a broad basket of goods and services bought by urban consumers, and the percentage change over a year is the commonly quoted inflation rate. Inflation compounds just like interest: a few percent a year adds up to a large change over a decade.
At an illustrative 3% inflation rate, something that costs $100 today would cost $100 × 1.03^10 = $134.39 in 10 years. Turned around, $100 held as cash would buy only about $74.41 worth of today's goods after 10 years.
Inflation matters for long-term goals because your future costs will be higher than today's prices. It also favors borrowers with fixed rates slightly, since they repay with dollars that buy less. Comparing your savings rate with inflation shows whether you are actually getting ahead.
Inflation: quick questions
How is inflation measured in the US?
The most widely cited measure is the Consumer Price Index from the Bureau of Labor Statistics, released monthly.
Does inflation affect my savings account?
Yes. If your APY is below inflation, the money buys less over time even though the balance grows.
Who tries to control inflation?
The Federal Reserve sets monetary policy, including its target for short-term interest rates, partly to keep inflation in check.
Sources
- Consumer Price Index — U.S. Bureau of Labor Statistics. Accessed October 17, 2026.
- Federal Open Market Committee — Federal Reserve Board. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations. See our methodology.
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