Inflation Calculator

What this calculator tells you

Inflation is the general rise in prices over time, which reduces what a unit of money can buy. This calculator shows how much an amount will need to be in the future to buy the same goods, and what an amount from the past is worth in today's money. It is useful for planning long-term costs and for judging whether a return has kept up with prices.

The result depends on the inflation rate you assume. Historical inflation varies from year to year and between countries, so the calculator is best used with a rate that reflects your country's recent record and your expectations for the future.

How the adjustment is worked out

The future cost equals the current amount multiplied by one plus the inflation rate, raised to the number of years. The real value of a future sum is the sum divided by the same factor. Because inflation compounds, a rate that seems modest in one year can change prices considerably over a decade or more.

A worked example

Suppose something costs 100 today and inflation averages 3% a year. After ten years, the same item costs 100 multiplied by 1.03 raised to the tenth power, which is about 134.39. Put the other way, 100 saved today will buy only what about 74.41 buys today, because 100 divided by 134.39 is about 0.744.

Why inflation matters for savings

A savings account that pays less than inflation loses purchasing power, even though the balance rises. For example, a balance growing at 2% a year while prices rise 3% a year is worth less in real terms each year. Comparing your return with inflation, rather than looking at the nominal return alone, shows whether you are getting ahead.

Assumptions and limits

The calculator uses a single rate for all years. Real inflation varies, and different goods rise at different speeds. Health care, education and housing have often risen faster than general prices in many countries, so a personal inflation rate may differ from the headline figure. The official measures published in your country can help you choose a figure.

The result does not include taxes or interest, which reduce what you keep from savings and can change the real return significantly.

Inflation in your own budget

The official inflation rate is an average across many goods. Your own costs may rise faster or slower, especially for housing, health care, education and energy. Track the change in your own spending over a year and compare it with the headline figure, then use the rate that reflects your real costs for long-range planning.

Inflation also changes the value of fixed income and fixed debts. A fixed debt becomes easier to carry as prices rise, while a fixed pension or annuity loses buying power. Consider both sides when reviewing your finances.

Using the result

Use the calculator to set a realistic target for long-term goals, such as retirement or education costs, by inflating today's cost to the year you will need it. Then compare your expected investment return after inflation to decide whether your savings plan will meet the goal.

Inflation and savings decisions

Inflation changes which savings choices make sense. When inflation is high, cash that earns little interest loses value quickly, and money needed in a few years may be better in an account whose rate keeps pace with prices. When inflation is low, the same account may be a reasonable choice. Review your savings rates against the expected inflation rate each year, and move money deliberately rather than leaving it in a low-return account by default.