Inflation Calculator
See how inflation erodes the buying power of money over time: what a sum will be worth in the future, what a basket will cost, and the total loss.
How to use this calculator
- 1Enter the amount of money or the price you want to project.
- 2Enter the average annual inflation rate you expect.
- 3Enter the number of years to look ahead.
- 4Read the future cost, the eroded buying power, and the total inflation over the period.
How it works
Inflation and buying power
future cost = amount × (1 + rate)^years buying power = amount ÷ (1 + rate)^years power lost = 1 − 1 ÷ (1 + rate)^years rate as a decimal, compounded annually
Inflation is a sustained rise in the general price level, which is the same thing as a fall in the value of money. If prices rise at rate r each year, then after n years the same basket of goods costs (1 + r)ⁿ times as much, and a fixed sum of money buys 1 ÷ (1 + r)ⁿ as much as it does today. The two are reciprocals of each other: a 3% annual rise over twenty years roughly doubles prices and nearly halves what a dollar can buy. Because the effect compounds, even a modest-sounding rate quietly does a great deal of damage over a working lifetime.
Worked example
At 3% average inflation, a basket costing $1,000 today will cost about $1,806 in 20 years, and $1,000 held as cash will buy only about $554 worth of today's goods — a 45% loss of purchasing power, even though the number of dollars never changed.
Inflation Calculator: the complete guide
Why cash quietly loses value
Money kept as cash feels safe because the number never falls — a thousand dollars is still a thousand dollars next year. But its value is measured by what it buys, and that is constantly eroding as prices rise. Inflation is best thought of as a tax on holding money: you are not charged directly, but each year the same balance commands fewer goods and services.
The effect is invisible in the short term and brutal over the long term because it compounds. At 3% a year, prices double roughly every 24 years — the rule of 72 applied to inflation. Someone who retired holding cash forty years ago would have seen its purchasing power fall by more than two-thirds. This is the central reason financial advice pushes people toward assets that at least keep pace with inflation rather than leaving large sums idle.
Real returns are what actually matter
Because of inflation, the headline (nominal) return on an investment overstates how much better off it leaves you. What matters is the real return — the nominal return minus inflation. A savings account paying 2% while inflation runs at 3% has a real return of about −1%: you are slowly getting poorer despite watching the balance tick upward.
This is why comparing an investment's return against the inflation rate is more honest than looking at the raw percentage. An asset needs to beat inflation just to preserve wealth, and beat it by a meaningful margin to build wealth. When you use this calculator to project the future cost of a goal — a house deposit, a child's education, retirement — you are seeing the target that your savings and returns have to chase.
The limits of a single average rate
Real inflation is not a smooth line. It spikes during supply shocks and energy crises, sits near zero or even turns negative in recessions, and varies enormously between categories — the cost of healthcare and education has outpaced the general index for decades, while electronics have fallen. A single average rate smooths all of this into one clean curve, which is useful for intuition but should not be mistaken for a forecast.
The honest way to use a projection like this is to test a range: run it at 2%, at 3%, and at 5% and see how far apart the answers land. The spread tells you how much the outcome depends on an assumption nobody can pin down precisely. For long horizons the sensitivity is large, which is itself the lesson — small differences in the assumed rate compound into very different futures.
Frequently asked questions
How does inflation reduce the value of money?
Inflation raises the general price level, so the same sum buys fewer goods over time. If prices rise at rate r for n years, money's buying power falls to 1 ÷ (1 + r)ⁿ of today's — the reciprocal of how much prices rose. At 3% for 20 years, a dollar buys about 55 cents' worth.
What is a typical inflation rate to assume?
Central banks in most developed economies target around 2%, and the long-run realised average has been roughly 2–3% a year, though individual years vary widely. For planning it is wise to test a range — say 2% to 5% — because the outcome over long horizons is very sensitive to the rate.
What is the difference between nominal and real return?
The nominal return is the headline percentage; the real return subtracts inflation. An account paying 2% while inflation is 3% has a real return of about −1%, meaning you lose purchasing power despite the growing balance. Real return is what tells you whether you are actually getting richer.
Does this calculator account for changing inflation rates?
No — it applies one constant average rate, compounded annually. Real inflation fluctuates and differs by category, so treat the result as a scenario, not a forecast. Running it at several rates shows how sensitive the future cost is to the assumption.