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Senior Advisor

Re: If someone says ....

 The Fed calculates inflation monthly.  The annual inflation number is the simple average of the 12 monthly inflation rates.  Because it is the average of the monthly inflation rates you can use it to directly calculate the inflation rate for that year.  Now, the basis (aka the base) used to calculate the inflation rate is "what things cost the year before" which is the same thing as saying if you got 2% inflation, things cost 1.02 times last year.

  Let's assume for five consecutive years the respective annual inflations rates were 2%, 4%, 3%, -2% & 0.  If you want to know how the price of things compares to five years before it is simply the product of all those years, or (1.02)((1.04)(1.03)(.98)(1.00) = 1.07 times your base price (in your example 1).

  That's why I referred you to the table of annual inflation data. If you set up a simple spreadsheet, you can easily calculate the inflation between any two years.

  You can calculate backward just as easily.  The inverse of 2% inflation is (1/1.02) or 0.9804 {rounded to four places).  If you know what the price was in 2021 and you want to know what the average inflation-adjusted price was in 2015, it's just math.  Keep in mind that the actual prices of an individual item in 2015 might not be anything like the inflation-adjusted price because inflation is composite number.

Senior Advisor

Re: Keep in mind, ...

Keep in mind, when you say, "what a dollar's worth" can have more than one meaning.  In the context of inflation, you're talking about buying power.  When you talk about the value of money then you're talking about interest rates, the same concept, different numbers.  

BA Deere
Honored Advisor

Re: looking for a certain type of inflation data

Kurt, maybe this will help.  You can play around and compare $1 value in 2021 or 1995 to 1985 or whatever and vice versa.