Purchasing power

In plain words

In 2000, $100 filled a big cart of groceries. Today the same $100 fills a smaller one: the bill is the same piece of paper, but it buys less. How much a sum of money can buy is its purchasing power.

Inflation eats it. If prices rise 3% a year, $100 buys about $97 worth of last year’s goods. In the US, $100 kept in a drawer since January 2000 buys only what $50.17 bought then (Oct 2026).

What matters for your life is not how many dollars you have but what they buy. That is why economists turn dollar amounts into real terms: a raise from $50,000 to $52,000 is a real raise only if prices rose less than 4%.

Example

One level deeper

Purchasing power is measured with a price index, most often the consumer price index. Divide a sum by how much prices have risen and you get its value in older dollars; multiply and you get today’s. Our inflation calculator does it for any two months since 1913.

Purchasing power differs between countries too: $100 changed into rupees buys far more in India than $100 does in New York. That comparison is purchasing-power parity, used to compare living standards across countries.

It does not fall evenly. Over recent decades TVs, phones and clothes got cheaper while rent, health care and college got much dearer, so how much your money really lost depends on what you buy; see what got more expensive.

What one 1913 dollar buys, 1913 to today

The value of a January 1913 dollar, in 1913 prices, month by month. It fell fastest in the years of the two world wars, in the 1970s and after 2020, and rose only in spells of deflation, as in 1920–21 and the early 1930s.

Why it matters

It is what your paycheck and savings are really worth: a raise below inflation is a pay cut in disguise.

It explains why cash kept for decades loses value, and why long-term savers look for returns above inflation.

It is the yardstick for comparing prices across decades, which is what the difference between nominal and real numbers is about.

A common mistake