$100 in 2000 has the same buying power as about $183 in 2025. If your savings or wages haven’t grown by that much over 25 years, you’ve effectively gotten poorer even if the number on your bank statement stayed the same or grew a little.
Inflation is the gradual increase in prices over time. It’s measured by the Consumer Price Index (CPI), which tracks the cost of a basket of goods and services that typical households buy. When the CPI goes up 3%, it means that basket costs 3% more than it did a year ago. Your dollar buys 3% less.
How 3% inflation compounds
3% doesn’t sound like much. Over one year, it isn’t. $100 buys $97 worth of stuff. Over 10 years at 3%, $100 buys about $74 worth. Over 25 years, about $48 worth. The erosion is slow enough that you don’t feel it year to year, but over a decade or two, it’s significant.
This is why a $50,000 salary in 2000 doesn’t feel like the same amount in 2025, even though the number hasn’t changed. Rent, groceries, gas, healthcare. Everything costs more. If your income doesn’t grow at least as fast as inflation, you’re falling behind.
What inflation has done to specific costs
Housing: median home price in 2000 was about $120,000. In 2025, it’s over $400,000. That’s far above the general inflation rate, meaning housing costs have outpaced inflation.
Healthcare: healthcare costs have grown at roughly 5% to 6% per year, consistently above the general CPI. The average family health insurance premium is now over $23,000 per year, up from about $6,000 in 2000.
College tuition: average tuition at a four-year public university has roughly tripled since 2000, growing far faster than wages or general inflation.
Groceries: food at home has roughly tracked general inflation, up about 80% to 90% since 2000. The recent 2022 to 2023 spike was an exception, with grocery prices jumping about 11% in a single year.
Why your savings account is losing money
If inflation is 3% and your savings account pays 0.05%, your money loses about 2.95% of its purchasing power every year. On $20,000, that’s roughly $590 per year in lost value. You don’t see a withdrawal. The number in the account stays the same. But what that number can buy shrinks.
This is the argument for high-yield savings accounts (4% to 5% APY) and investing. A savings account that matches or slightly exceeds inflation preserves your purchasing power. Investments that average 8% to 10% over time grow your purchasing power. A traditional bank account at 0.01% does neither.
How wages compare
Median household income has grown from about $42,000 in 2000 to about $80,000 in 2024. That’s roughly a 90% increase. General inflation over the same period was about 83%. So median wages have just barely kept pace with inflation on average.
But averages hide the range. Many workers, particularly those without college degrees or in industries with stagnant wages, have seen real wages (wages adjusted for inflation) stay flat or decline. If your specific wages haven’t grown 83% since 2000, inflation has reduced your real income.
What you can do about it
Earn more than inflation on your savings. Move cash from a 0.01% bank account to a high-yield savings account paying 4% to 5%. For longer-term savings, invest in index funds that have historically returned 8% to 10% annually, well above inflation.
Negotiate raises that at least match inflation. If your company offers a 2% annual raise and inflation is 3%, you’re effectively taking a 1% pay cut. Frame your raise requests in terms of the cost of living: “With inflation running at 3% to 4%, a 2% raise is effectively a reduction in my real compensation.”
Lock in costs where possible. A fixed rate mortgage locks your housing payment for 30 years. Inflation makes that payment cheaper in real terms over time because the dollar amount stays the same while the dollar itself is worth less. This is one of the few ways inflation works in your favor as a borrower.
Avoid holding too much cash for too long. An emergency fund in a high-yield account is smart. $50,000 sitting in a checking account earning nothing for three years is losing value. Money beyond your emergency fund and short term needs should be invested where it can outpace inflation.
Inflation isn’t always bad
Moderate inflation (2% to 3%) is considered healthy for the economy. It encourages spending and investment because holding cash has a cost. Wages tend to rise with moderate inflation, even if not perfectly.
The problem is when inflation spikes above 5% to 7%, as it did in 2022 and 2023. Wages can’t keep up with rapid price increases, and people feel poorer even if they’re earning more than before. The Fed raises interest rates to slow inflation, which raises borrowing costs for everyone.
You can’t control inflation. You can control where your money sits while it’s happening. The gap between 0.01% and 4.5% on your savings, and the gap between holding cash and investing for the long term, is the difference between losing to inflation and staying ahead of it.