Inflation Calculator

Inflation is compounding in reverse. The same mechanism that makes savings grow makes money shrink, and because it works quietly at a few percent a year, its long-run effect is consistently underestimated. At 3% annual inflation, money loses roughly half its purchasing power over 24 years — so a salary, a pension, or a fixed sum set aside for the future buys about half as much by the time you reach it. This calculator projects that erosion. Enter an amount, an inflation rate and a number of years, and it shows what that money will effectively be worth in today's terms, and what you would need in future money to match today's purchasing power. Both directions are useful: the first for judging a fixed future sum, the second for setting a target that will still mean something when you get there.

How this is calculated

Future purchasing power = amount ÷ (1 + rate)ʸ, where rate is annual inflation and y the number of years. Running it the other way, the amount needed to preserve today's purchasing power = amount × (1 + rate)ʸ.

Worked example on $10,000 at 3% over 20 years: 10,000 ÷ 1.03²⁰ = $5,537. The same shopping basket that costs $10,000 today would cost $18,061 in twenty years, which is the reverse calculation on the same numbers.

The rule of 72 works here too, in reverse. Divide 72 by the inflation rate to find the years until money halves in value: 24 years at 3%, 14 years at 5%, and just 7 years at 10%.

Why this changes how you read a return rate

A savings account paying 2% during a period of 3% inflation loses 1% a year in real terms, no matter how the balance looks on the statement. Nominal growth is not growth; only the gap between your return and inflation is.

This is the strongest argument against holding long-term savings in cash. Over a working lifetime, the difference between a real return of roughly zero and a real return of 4% or 5% is the difference between preserving money and multiplying it.

What rate to assume

Most developed-economy central banks target around 2%, and the long-run US average has been closer to 3%. Recent years have shown that it can spike well above target and stay there for a while, so 3% is a sensible planning default and higher figures are worth stress-testing against.

Note also that headline inflation is an average across a basket of goods, and your personal rate may differ substantially. Housing, education and healthcare have historically risen faster than the general index in many countries, while consumer electronics have fallen. If your spending is concentrated in the fast-rising categories, the official figure understates your experience.

How to use the inflation calculator

Enter the amount. A sum of money today, or a fixed future amount you want to evaluate.
Set the inflation rate. 3% is a reasonable long-run default. Try 5% as a stress test.
Choose the number of years. The effect is roughly linear over short periods and compounds noticeably beyond about ten years.

Frequently asked questions

What inflation rate should I use?

Central banks target ~2%; the long-run US average is about 3%. Recent years have shown it can spike well above that, so 3% is a reasonable planning default.

How long until my money is worth half as much?

Divide 72 by the inflation rate. At 3% that is about 24 years; at 5%, about 14; at 10%, about 7. This is the rule of 72 applied in reverse, and it is accurate enough for planning.

Does inflation cancel out a pay rise?

Partly, and sometimes entirely. A 3% rise during 3% inflation leaves your real income unchanged. Anything below the inflation rate is a real-terms pay cut regardless of how the number looks. Compare offers and raises against the inflation rate, not against zero.

Why does my personal inflation feel higher than the official figure?

Because the headline index averages a basket that may not resemble your spending. Housing, education and healthcare have historically risen faster than the general index in many countries, while electronics have fallen. If your budget is weighted toward the former, your lived rate is genuinely higher than the published one.