$3 in 2005 has the same purchasing power as $3.10 in 2006. Over the 1 year this is a change of $0.10.

The average inflation rate of the dollar between 2005 and 2006 was 3.31% per year. The cumulative price increase of the dollar over this time was 3.23%.

## The value of $3 from 2005 to 2006

So what does this data mean? It means that the prices in 2006 are 0.03 higher than the average prices since 2005. A dollar in 2006 can buy 96.88% of what it could buy in 2005.

These inflation figures use the Bureau of Labor Statistics (BLS) consumer price index to calculate the value of $3 between 2005 and 2006.

The inflation rate for 2005 was 3.39%, while the inflation rate for 2006 was 3.23%. The 2006 inflation rate is higher than the average inflation rate of 2.23% per year between 2006 and 2021.

## USD Inflation Since 1913

The chart below shows the inflation rate from 1913 when the Bureau of Labor Statistics' Consumer Price Index (CPI) was first established.

## The Buying Power of $3 in 2005

We can look at the buying power equivalent for $3 in 2005 to see how much you would need to adjust for in order to beat inflation. For 2005 to 2006, if you started with $3 in 2005, you would need to have $3.10 in 2005 to keep up with inflation rates.

So if we are saying that $3 is equivalent to $3.10 over time, you can see the core concept of inflation in action. The "real value" of a single dollar decreases over time. It will pay for fewer items at the store than it did previously.

In the chart below you can see how the value of the dollar is worth less over 1 year.

## Value of $3 Over Time

In the table below we can see the value of the US Dollar over time. According to the BLS, each of these amounts are equivalent in terms of what that amount could purchase at the time.

## US Dollar Inflation Conversion

If you're interested to see the effect of inflation on various 1950 amounts, the table below shows how much each amount would be worth today based on the price increase of 3.23%.

## Calculate Inflation Rate for $3 from 2005 to 2006

To calculate the inflation rate of $3 from 2005 to 2006, we use the following formula:

$$\dfrac{ 2005\; USD\; value \times CPI\; in\; 2006 }{ CPI\; in\; 2005 } = 2006\; USD\; value $$

We then replace the variables with the historical CPI values. The CPI in 2005 was 195.3 and 201.6 in 2006.

$$\dfrac{ \$3 \times 201.6 }{ 195.3 } = \text{ \$3.10 } $$

$3 in 2005 has the same purchasing power as $3.10 in 2006.

To work out the total inflation rate for the 1 year between 2005 and 2006, we can use a different formula:

$$ \dfrac{\text{CPI in 2006 } - \text{ CPI in 2005 } }{\text{CPI in 2005 }} \times 100 = \text{Cumulative rate for 1 year} $$

Again, we can replace those variables with the correct Consumer Price Index values to work out the cumulativate rate:

$$ \dfrac{\text{ 201.6 } - \text{ 195.3 } }{\text{ 195.3 }} \times 100 = \text{ 3.23\% } $$

## Inflation Rate Definition

The inflation rate is the percentage increase in the average level of prices of a basket of selected goods over time. It indicates a decrease in the purchasing power of currency and results in an increased consumer price index (CPI). Put simply, the inflation rate is the rate at which the general prices of consumer goods increases when the currency purchase power is falling.

The most common cause of inflation is an increase in the money supply, though it can be caused by many different circumstances and events. The value of the floating currency starts to decline when it becomes abundant. What this means is that the currency is not as scarce and, as a result, not as valuable.

By comparing a list of standard products (the CPI), the change in price over time will be measured by the inflation rate. The prices of products such as milk, bread, and gas will be tracked over time after they are grouped together. Inflation shows that the money used to buy these products is not worth as much as it used to be when there is an increase in these products’ prices over time.

The inflation rate is basically the rate at which money loses its value when compared to the basket of selected goods – which is a fixed set of consumer products and services that are valued on an annual basis.