Inflation Calculator
The Inflation Calculator helps you understand how the purchasing power of money changes over time due to inflation. Inflation erodes the value of money — what $100 buys today will cost more in the future. This calculator shows you the future cost of goods, the real return on investments after inflation, and how much you need to earn to maintain purchasing power. Understanding inflation is essential for retirement planning, salary negotiation, and long-term investment decisions. Historical US inflation averages about 3% per year, but it can vary significantly.
Formula
Future Cost = Present Cost × (1 + inflation rate)^n Real Return = Nominal Return − Inflation Rate Required Income = Current Income × (1 + inflation rate)^n n = number of years
Example
If something costs $1,000 today and inflation is 3.5% per year for 10 years: Future Cost = $1,000 × (1.035)^10 Future Cost = $1,000 × 1.4106 Future Cost = $1,410.60 If your investment returns 7% and inflation is 3.5%: Real Return = 7% − 3.5% = 3.5%
How to Use
- Enter the current amount or cost
- Input the expected annual inflation rate (use 3% as default)
- Enter the number of years
- Review the future cost and the purchasing power loss
- Compare your investment returns to inflation to see real growth
Frequently Asked Questions
What is inflation?
Inflation is the rate at which the general level of prices rises, reducing purchasing power. Central banks target 2-3% inflation. High inflation (above 5%) erodes savings and investments quickly.
What is the difference between nominal and real return?
Nominal return is the stated return on an investment. Real return is the nominal return minus inflation. For example, if you earn 7% and inflation is 3%, your real return is only 4%.
How does inflation affect savings?
Inflation erodes the purchasing power of savings. If your savings earn less than inflation, you lose money in real terms. This is why keeping large sums in low-interest accounts is risky over the long term.
What is the historical average inflation rate?
US inflation has averaged about 3% per year over the last century. In recent years (2020-2024), it ranged from 1.4% to 9.1%. Use 3% for conservative long-term planning, but monitor current rates.
How can I protect against inflation?
Invest in assets that outpace inflation: stocks (historically 7-10% return), real estate, TIPS (Treasury Inflation-Protected Securities), or commodities. Avoid keeping large sums in cash or low-yield savings accounts.