Salary Inflation Calculator - are you able to spend more?

The formula

inflation factor = CPI(end year) ÷ CPI(start year)
break-even salary = old salary × inflation factor
real change % = (new salary ÷ break-even salary − 1) × 100

The break-even figure is the value worth internalising. In a span of 5 years from 2020 through to 2025, U.S. consumer prices increased 24.4%. Therefore, with a starting salary of $60,000 in 2020, a total salary of $74,636 would have been required by 2025 simply to maintain current purchasing power. Any amount less than this represents a true loss of purchasing power, regardless of the language used at the time of negotiation. That is why a "3% raise" in a year of 5% inflation is a 2% reduction in what you can actually buy.

Nominal figures can be misleading

Salaries are negotiated and documented in nominal terms, and that's why inflation quietly benefits an employer: real wages can drop without a single dollar amount on the paycheck ever going down. The gap looks negligible in any single year, but it compounds. Three or four consecutive years of raises that fall short of inflation add up to a real pay cut that never appeared as such in the negotiated agreement.

Using the same logic, the opposite effect occurs when a raise exceeds the general price increase. When a raise outpaces inflation, purchasing power grows, and the raise does what a raise is supposed to do.

What counts as a good raise?

There isn't one specific percentage that applies to all scenarios, but there is a general floor: a raise below the inflation rate is a pay cut dressed up as a bigger salary. Clearing inflation by a point or two generally indicates a cost-of-living adjustment; clearing it by several points generally signifies a promotion or a genuine market correction. As long as you remain below that floor, call it stagnation. Use the numbers above as your own floor the next time you're negotiating.

The limitations

CPI is an average statistic representing an average household, not your household. Additionally, rent and healthcare costs have increased at a greater pace than the reported headline figure, so if either category comprises a significant portion of your budget, the actual hit to you is bigger than the calculator shows. Running individual years through this calculator also shows where and when the pinch occurred, since the multi-year figure shows the annualized average, not the year-by-year path, so run each year separately if you want to see where it happened.

Citing this data

The inflation factor comes from the Bureau of Labor Statistics. They publish CPI-U annual averages that we use in the salary inflation calculator. Cite the BLS as your source whenever referencing a salary inflation figure in an article, negotiation or anywhere else. The calculator merely performs the calculation for you.