The Federal Reserve has decided to keep an inflation target of 2.00% each year. Historically, according to the CPI, inflation has been 3.26% each year.
The green line shows the annualized rate of increase in the CPI since 1913. (The actual yearly CPI rate varied, but the green line shows the average and calculates it as though it were the yearly rate.) The red line represents what would have happened to the U.S. Dollar’s purchasing power if the Federal Reserve had targeted, and achieved, a 2.00% inflation figure. The Dollar would buy more than three times what it does today.
The blue line represents the purchasing power trend between 1870 and 1913, the year the Federal Reserve was created. At that time, the U.S. Dollar on average was actually increasing in value by .69% every year. If that trend had continued, the U.S. Dollar would buy 42 times what it does today. Imagine that.