ECONOMY STUDIONobody took your money. The $100 bill in your wallet is exactly the same as it was in 2000. What changed is everything it buys: $100 today buys what about $51.41 bought in 20001. Put the other way, the shopping you could do with $100 in 2000 now costs about $194.531.
That slow leak has a name, and in the US it is currently running at 3.4% a year2.
What inflation really is
Inflation is a rise in prices across the whole economy, on average. It isn’t one thing getting expensive; it’s almost everything getting a little more expensive, year after year.
To measure it, the Bureau of Labor Statistics collects about 100,000 prices every month3, from groceries and gasoline to haircuts and car insurance, and combines them into the Consumer Price Index, the CPI. The bureau has published the index since 1913, and prices today are about 34 times their 1913 level4.
Small numbers compound. At 3% a year, prices double in about 24 years5, well within a single working life.
Follow the $100
The averages hide real shopping trips. In 2000 a dozen eggs cost $0.91, a gallon of regular gasoline $1.51 and a pound of ground beef $1.576. In August 2026 the same items cost $2.27, $4.20 and $6.926.
If prices rise faster than your pay, you get poorer even when you get a raise. That is exactly what happened in the last inflation wave: from March 2021 to March 2023, average hourly pay rose 10.8% while prices rose 14.0%7. Wages have since caught up. From February 2020 to August 2026, pay rose 32.3% and prices 29.5%7.
What pushes prices up
Economists point to three big forces.
Too much money chasing too few goods. To fight the pandemic recession, the US money supply grew about 40% from February 2020 to February 2022, and 26.8% in the single year to February 2021, the fastest on record8. More money met fewer goods, because factories were shut and ships were stuck at sea.
Supply shocks. When something suddenly cuts supply, prices jump. Bird flu killed 50.7 million egg-laying hens between October 2024 and March 20259, and eggs hit a record $6.23 a dozen6. Energy works the same way: in June 2022 a gallon of gas hit a record $5.066.
Expectations. If everyone expects prices to rise, workers ask for bigger raises and businesses raise prices early. Inflation can start to feed itself.
The 2022 shock
Put the three forces together and you get 2022. Prices rose 9.1% in the 12 months to June 2022, the fastest pace since 198110.
Who wins, who loses
Inflation doesn’t hit everyone the same way.
Savers lose. Money earning 1% while prices rise 3% loses about 2% of its buying power every year12. Fixed incomes lose too, whenever payments don’t keep up with prices.
Borrowers with fixed-rate loans can win. A fixed payment stays the same while pay and prices rise around it. Take a $1,500 monthly loan payment against $5,000 of monthly pay that rises 3% a year: it takes 30.0% of pay in year 1, 23.0% in year 10 and 17.1% in year 2013.
The biggest borrower of all is the government. Inflation shrinks the real value of debt it already owes, which is what makes inflation tempting, and dangerous.
When inflation runs wild
When prices rise without limits, money stops working. In 1923 Germany’s central bank printed banknotes worth billions of marks14. In January 2009 Zimbabwe issued a 100 trillion dollar note that was worth about US$30 on its first day; at the peak, prices were rising an estimated 79.6 billion percent a month15. Within months, Zimbabwe gave up its own currency15.
How the Fed fights back
That is why central banks fight inflation hard. The Federal Reserve aims for 2% inflation over time16. Not zero: when people expect prices to fall, they put off spending, and the economy can stall.
Its main tool is interest rates. When borrowing gets more expensive, people and businesses spend less, and price rises cool. The most famous inflation fighter was Paul Volcker, Fed chair from August 197911. Inflation had peaked at 14.8% in the 12 months to March 1980; the federal funds rate averaged 19.1% in June 1981, and inflation fell to 3.8% by December 198211. The cure hurt: unemployment reached 10.8%11, and in October 1981 the average 30-year mortgage rate peaked at 18.63%17.
Where we are now
Inflation is 3.4%, still above the Fed’s 2% goal2,16. Energy is doing much of the pushing: in the 12 months to August 2026, energy prices rose 16.3% and gasoline 27.4%, while core inflation, without food and energy, was 2.4%2.
In September 2026 the Fed raised its rate target to 3.75–4%, its first increase since July 2023, saying “Inflation remains elevated.”18 The Bureau of Labor Statistics publishes the CPI every month19; you can follow each report on our US inflation rate page.
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