Inflation Calculator

The calculator compounds the inflation rate you enter over the number of years, and reports two figures:

• Future cost = amount × (1 + rate)^years. This is what something that costs your amount today will cost later, if its price rises with inflation.
• Future purchasing power = amount ÷ (1 + rate)^years. This is what your amount, kept as cash, will buy later, measured in today's prices.

With the defaults ($10,000, 4%, 10 years), the future cost is $14,802.44 and the purchasing power is $6,755.64. The two are not mirror images. Prices rise by about 48%, but your cash loses about 32% of its buying power, because 1 ÷ 1.48 is about 0.68. Use future cost when you are budgeting for a goal, and purchasing power when you are judging money that will sit still.

Enter your salary as the amount to see what it has to become just to keep pace. At $60,000 and 3% inflation:

• 1 year: $61,800. A raise smaller than $1,800 is a pay cut in real terms.
• 5 years: $69,556.44. If your pay is still $60,000 by then, it buys about what $51,756.53 buys today.

The same works for spending in retirement. If you live on $4,000 a month today and retire in 25 years, the same lifestyle would cost about $8,375.11 a month at 3% inflation. Plan your savings target from that figure, not from today's $4,000.

The calculator takes one rate for every year. If you know the actual yearly rates, don't use their simple average. Multiply the yearly factors and take the root:

average rate = (1.03 × 1.08 × 1.04 × 1.025)^(1/4) − 1 = 4.35%

The simple average of those four years is 4.375%. On $1,000 over 4 years, 4.35% gives $1,185.69, very close to the exact $1,185.82, while 4.375% gives $1,186.82. The gap is small here but grows when the rates swing widely or the period is long.

The calculator has no built-in price data. The result depends entirely on the rate you enter, so:

• For a national figure, use the long-run consumer price index average published by your country's statistics agency.
• For a personal goal, consider whether the costs involved have risen faster or slower than general prices. Run a low and a high rate to bracket the answer.
• To restate an old price in today's money, enter the old amount, the average inflation since then and the number of years. The future cost is the estimate of today's equivalent.

The rate field accepts 0% to 30% and the period 1 to 60 whole years. Negative rates (deflation) are not supported.