💵 Inflation Calculator
Calculate future purchasing power erosion and historical value of money over time.
What inflation does to money, in both directions
Inflation is the rate at which money loses purchasing power. A 3% rate does not mean everything costs 3% more; it means a basket of typical spending does, while some things rise much faster and others fall. What matters for planning is the compounding, because inflation behaves exactly like interest working against you.
future cost = present cost × (1 + i)n today's value = future sum / (1 + i)n
How fast prices double
The rule of 72 applies to inflation as neatly as to interest. Divide 72 by the rate to get the years until prices double:
| Inflation rate | Prices double in | $1,000 buys after 20 years |
|---|---|---|
| 2% | 36 years | $673 |
| 2.5% | 29 years | $610 |
| 3% | 24 years | $554 |
| 4% | 18 years | $456 |
| 6% | 12 years | $312 |
At 3%, the difference between a 20-year horizon and a 30-year one is the difference between keeping 55% of your purchasing power and keeping 41%. For retirement planning, where the horizon is often 50 years from first contribution to final withdrawal, this is the dominant variable after the return itself.
Nominal versus real returns
A savings account paying 4% while inflation runs at 3% is not making you 1% richer in the simple sense. The exact calculation divides:
real return = (1 + nominal) / (1 + inflation) − 1
(1.04 / 1.03) − 1 = 0.97%. Subtraction gets you close at low rates and badly wrong at high ones. During a period of 40% nominal returns and 35% inflation, the real return is 3.7%, not 5%.
Any long-term projection should be run twice: once nominal, to see the account balance, and once real, to see what it buys. A plan that reaches $1m in 30 years at 3% inflation is a plan that reaches about $412,000 in today's terms.
Why your inflation is not the official rate
Published inflation measures a basket weighted by average national spending. Your basket is your own. If housing is 40% of your budget and housing costs are rising at 7% while the headline rate is 3%, your personal inflation rate is well above the official one. Retirees typically experience higher inflation than the headline because healthcare, which rises faster than average, makes up more of their spending.
Salaries and the rise that is not a rise
A 3% pay increase in a year of 3.4% inflation is a pay cut of about 0.4% in real terms. Over a career this compounds in the same way savings do, in the wrong direction. The useful habit is to convert every pay offer into real terms before deciding how to feel about it.
| Year | Nominal salary | Value in year-0 money |
|---|---|---|
| 0 | $60,000 | $60,000 |
| 5 | $66,245 | $57,150 |
| 10 | $73,140 | $54,420 |
| 15 | $80,752 | $51,830 |
| 20 | $89,157 | $49,360 |
A worked example
Something that cost $45 in 2000 costs about $85 today at an average 2.6% inflation over 25 years. Running it forwards instead: a $1,200 monthly expense today, at 2.5% inflation, becomes $1,969 in twenty years and $2,521 in thirty. Budgeting a fixed retirement income against a rising expense line is how plans that look comfortable at 65 fail at 85.
Frequently Asked Questions (FAQs)
What inflation rate should I assume for planning?
Central banks in most developed economies target around 2%, and long-run realised averages tend to run slightly higher. Planning at 2.5% to 3% is a reasonable compromise. If your spending is weighted towards housing, healthcare or education, assume more.
Is deflation better than inflation?
Not usually. Falling prices sound good but they encourage people to delay purchases, which reduces demand and employment, and they make existing debts harder to repay because the debt stays fixed while incomes fall. Mild, predictable inflation is the stated preference of almost every central bank for that reason.
What is the difference between CPI and core inflation?
CPI measures the whole basket. Core strips out food and energy, which are volatile and often driven by supply shocks rather than underlying demand. Policymakers watch core for the trend; households experience the headline figure, because food and energy are exactly what they buy.
Does inflation help people with debt?
Fixed-rate debt, yes. A mortgage payment fixed at $1,800 becomes easier to meet as wages rise with prices, so inflation quietly transfers value from lender to borrower. It does not help variable-rate debt, since the rate normally rises in response to inflation.
How do I protect savings from inflation?
Assets that grow with or above prices: equities over long horizons, index-linked government bonds, and property in some markets. Cash is the most exposed, because the nominal balance is fixed. The real risk of holding cash is not visible on the statement, which is precisely why it gets ignored.
Why does the calculator's historical figure differ from other sources?
Different sources use different baskets, different base years and different regional indices. This calculator applies a constant rate you choose, which is clean for projections but will not match an official historical series exactly. For historical comparisons, use a published index for your country.