Why a dollar buys less every year

More dollars, same stuff

InflationInflationWhen prices across the economy rise over time, so each dollar buys less. A main cause is the supply of money growing faster than the amount of goods and services.See the glossary is what happens when more dollars chase the same amount of stuff. If the money supply grows faster than the things we make, each dollar buys less.

Think of a pizza. Cut it into twelve slices instead of eight, and you have more slices. You don’t have more pizza. Each slice just got smaller.

How many more dollars

In 2000, Americans held about $4.7 trillion in cash, checking, and savings. Economists call this the money supplyMoney supplyThe total amount of money people can easily spend: cash plus money in checking and savings accounts. The Federal Reserve measures it and calls the broad measure M2. When it grows faster than the economy, each dollar tends to buy less.See the glossary. By September 2026, it was $23.4 trillion.

5.0×

More dollars, not much more stuff, 2000–2026

Both lines start at 1× in early 2000. A line at 2× means twice as much as then.

Line chart with two lines, both starting at 1 in Q1 2000. The number of dollars grew to 5.0×. The real amount of goods and services the economy makes grew to 1.8×. The full data is in the table below the chart.

• Dollars (M2 money supply)
• Stuff we make (real GDP)

That’s a lot more slices for not much more pizza. Then came a sudden jump. From February 2020 to March 2022, the money supply grew 41% in about two years.

Even the plan is a leak

The Federal Reserve says plainly that it wants prices to rise about 2% a year. That sounds small, but it adds up. At 2% a year, a dollar buys half as much in about 35 years.

That is the goal, when everything goes right. In every year from 2021 to 2025, prices rose faster than that.

Sources: Federal Reserve, “Why does the Federal Reserve aim for inflation of 2 percent over the longer run?”, as of current policy; BLS, CPI-U annual averages (via FRED), as of 2025 (annual average).

The long view

The U.S. created its central bankCentral bankThe institution that manages a country’s money and sets key interest rates. In the U.S. it is the Federal Reserve, created in 1913.See the glossary, the Federal Reserve, in 1913. Here is what has happened to the dollar’s purchasing powerPurchasing powerHow much a unit of money can buy. If a dollar bought a loaf of bread before and now buys half a loaf, its purchasing power has fallen by half.See the glossary since then, measured by the government’s own price index, the CPICPI (Consumer Price Index)A government measure of how much a typical basket of goods and services costs. In the U.S., the Bureau of Labor Statistics tracks it every month. When CPI goes up, your dollar buys less.See the glossary.

97%

What a dollar buys, in 1913 money, 1913–2025

100¢ means a dollar buys as much as it did in 1913.

Line chart. A dollar bought 100 cents’ worth of 1913 goods in 1913. By 2025, it bought 3¢’ worth. The fall is steepest after 1970. The full data is in the table below the chart.

Try it yourself

Pick an amount and a year. See what the same money would need to be today to buy the same things.

Who gets the new money first

New money doesn’t reach everyone at once. It enters through banks, the government, and people who already own assets like stocks and homes. They get to spend it before prices rise.

Wage earners and savers get it last. By the time a raise shows up, prices have already gone up. Economists call this the Cantillon effectCantillon effectThe idea that people who get newly created money first gain the most, because they can spend it before prices rise. People who get it last pay the higher prices. It is named after Richard Cantillon, an 18th-century economist.See the glossary. In plain terms, the people closest to the money printer win, and the people farthest from it pay.

Why a savings account doesn’t fix it

A bank pays you interest on savings. But the interest is usually smaller than the leak. Here is a real example.

$2,446

• Cost of the same things$12,617

• Your savings account balance$10,171

  $2,446 short of keeping up

The account paid $171 in interest, so the balance grew to $10,171. But prices rose much faster. To buy what $10,000 bought in April 2021, you would need $12,617. The saver did everything right and still lost.

The gap is still open. In October 2026, the average U.S. savings account paid 0.38% a year. Over the twelve months to September 2026, prices rose 3.7%. A saver fell behind by about 3.4 percentage points, before taxes.

Sources: FDIC national savings rate (via FRED), as of October 2026; BLS, CPI-U monthly (via FRED), as of September 2026.

The result: saving stops making sense

When saving loses money, people look for somewhere else to put it. They are pushed into stocks, real estate, and riskier bets just to keep up. Saving turns into speculating. That isn’t greed. It’s a sensible response to money that leaks.