How Inflation Quietly Erodes Your Purchasing Power

Pull a $20 bill out of your wallet. It's the same piece of paper your parents or grandparents carried in the 1990s. Same ink, same cotton-linen blend, same face on the front.

Hand that bill to a cashier today and you walk out with a pound of ground beef, a loaf of bread, a dozen eggs, and maybe a gallon of milk. In 1995 the same bill filled the cart: two pounds of ground beef, two loaves of bread, two dozen eggs, a gallon of milk, a bag of apples, a bunch of bananas, a pound of butter, a pound of ground coffee — and you walked out with change.

The bill didn't change. The groceries didn't change. What changed is how much of each the bill controls. Economists call that purchasing power — the pile of real stuff a unit of money can command. For most of the last fifty years it has been shrinking on a schedule.

Most articles about inflation explain it as “prices going up.” That frame is backwards. The bread isn't getting more valuable. The dollar is getting smaller. Once you see it that way, the countdown clock on the homepage — and every item in the basket beneath it — stops looking like a prediction and starts looking like a receipt for the erosion that has already happened.

What purchasing power actually is

A dollar is a measuring stick. You use it to mark how much of the real economy a given amount of work buys you.

The trouble is that this particular measuring stick gets a little shorter every year. Prices keep rising, but the real story is the dollar itself: smaller every year, ever since the U.S. left the gold standard in 1971.

When a store charges more dollars for a loaf of bread, there are two possible explanations. The first is that the bread got better — fancier flour, a longer fermentation, a more skilled baker. The second is that each dollar got smaller, so it takes more of them to buy the same loaf. For most of the basket, most of the time, it's the second.

This is the distinction the economist Milton Friedman spent his career pressing on. “Inflation,” he argued in a 1970 lecture, “is always and everywhere a monetary phenomenon.” Translated out of the jargon: a broad, sustained rise in prices across most of what people buy doesn't happen by accident. It happens when the money supply grows faster than the economy can produce real goods and services. The dollar shrinks first. The price moves second.

The slow-drip math: why small percentages hurt

The Federal Reserve's official target for the pace of this shrinkage is 2% per year. Two percent sounds small. It feels harmless. It isn't.

Two percent a year compounds. Here's what that looks like.

A dollar that buys $1.00 of stuff today buys about $0.82 of the same stuff ten years from now, about $0.67 after twenty years, and about $0.55 after thirty. By the time a twenty-five-year-old collects their first Social Security check, roughly half of their money's buying power has quietly evaporated.

The last five years have run hotter. Averaged across 2021–2025, U.S. consumer prices rose closer to 4% per year than 2%. At that pace, the thirty-year drift is steeper still: a dollar today would command less than a third of what it commands now by the end of a working career.

Half your money vanishes in a lifetime, and you never see it leave. No one reaches into your account. No line item appears on your paycheck. The balance stays the same; the pile of real stuff it controls is smaller every year.

One important caveat. These are average drift numbers, drawn from the government's basket of goods and services. Your personal drift depends on what you actually buy. Electronics and computing power have gotten dramatically cheaper over the same window — a comparable TV costs a fraction of its 1990s price. Housing, healthcare, childcare, and education have run hotter than the headline number. The basket average is a composite; your lived experience will drift faster or slower depending on how close your spending mix sits to it.

Where the drift shows up in real life

The cleanest way to see purchasing power erode is to price a thing that hasn't really changed.

Take a cup of coffee. A diner in the mid-1990s charged roughly a dollar for a bottomless cup. Today that same cup runs several dollars at a chain counter, or a couple at the same diner if the diner is still open. The beans didn't become rarer. Coffee has always been coffee. The dollars shrank.

A dozen eggs cost around a dollar at the turn of the 1990s. They're several times that now. Chickens haven't forgotten how to lay. The same bird produces the same egg. What moved is the measuring stick.

Rent tells the same story on a bigger scale. The U.S. median gross rent in the 1990 Census was under $500 a month; today it is in four figures in most metros. The apartments are the same apartments. The walls didn't appreciate.

Gasoline is the noisy case, because oil shocks and OPEC decisions push the per-gallon price around year-to-year — we unpack that in the piece on why oil shocks can't cause broad inflation on their own. But strip out the spikes and troughs and the trend line still walks north at roughly the pace of the rest of the basket.

The point isn't any single item. The point is that the whole basket has moved in the same direction over the same window. When coffee, eggs, rent, milk, bread, and healthcare all drift higher at once, the story isn't about coffee or eggs or rent. It's about the unit those prices are denominated in.

“But wages go up too”

A skeptic will push back here, and the skeptic is partly right. Nominal wages — the dollar number on the paycheck — have grown. A median American household earns far more dollars per year now than in 1995.

The question is what those extra dollars buy. Economists call the answer real wages: nominal wages adjusted for the erosion of each dollar's purchasing power. Real median weekly earnings in the United States have risen by only about 10 to 15 percent in total over the last five decades, per the Bureau of Labor Statistics' median usual weekly real earnings series. Less than a third of a percent per year, compounded.

Nominal pay raises feel dramatic. Most of each raise gets absorbed by the rent, the grocery bill, and the insurance premium going up too.

What feels like a promotion is often a tread-water adjustment. The $20 bill in your wallet has lost buying power against almost everything it might buy, and the larger number on your paycheck is mostly there to replace what the bill no longer does.

There's a second layer to this, which we'll explore in more depth in a future piece. New money doesn't enter the economy evenly. It tends to arrive first at the banks and the borrowers closest to the money spigot, and last at wage earners and savers. The people who got the new money early did get richer over the last few decades, and their asset prices (stocks, real estate) show it. The people who got the new money last mostly treaded water.

What's actually doing the eroding

Purchasing power erosion is not weather. It's not a natural disaster, an accident, or a side effect of some other policy. It is the policy.

The U.S. money supply — the aggregate called M2, which includes cash, checking accounts, savings accounts, and money market balances — has grown at roughly 6 to 7 percent a year on average for decades. The real economy, measured by the amount of goods and services actually produced, has grown at closer to 2 to 3 percent. When the money grows faster than the stuff it can buy, each unit of money commands less stuff. That gap is the erosion.

We explain where that new money actually comes from in a separate piece — short version: most of it is created by commercial banks every time they make a loan, not printed by the government. And we explain why the official target is 2% rather than zero in another. The point for this article is narrower:

The 2% inflation target is the central bank telling you, in public, that it intends to take roughly 2% of your savings every year. Sometimes it hits the target. Sometimes, like the post-2020 window, it misses high. It has never, in the modern era, aimed at zero.

The erosion is a feature of the system, not a bug.

What this means for the clock

The homepage clock is not predicting anything exotic. It is extrapolating a process that has been running, without meaningful interruption, since 1971.

Every item card on the site is this same article, applied to one good. A cup of coffee. A dozen eggs. A month of rent. The card shows you how many satoshis — the smallest unit of bitcoin — it takes to buy that item today, and the clock counts down to the year when that number crosses a threshold.

The threshold is where one dollar's worth of purchasing power equals one satoshi. When coffee crosses it, it won't be because coffee changed. It will be because the dollar kept shrinking on its 2%-or-more schedule and satoshis, capped at a fixed supply forever, didn't.

Open the clock. Once you've seen the drift, you can't unsee it.