How to use this inflation calculator
Inflation works in two directions, so start by choosing the question you want answered:
- Future cost of today's money: enter something's price today to see what the same thing will cost in the future. Use it for budgeting a goal, a salary you'll need, or retirement spending.
- Today's value of future money: enter an amount you'll have or receive later, such as a savings target or a pension, to see what it would buy in today's money.
Then set the amount, the average annual inflation rate and the number of years. The chart and the year-by-year table show how the gap builds, and the insight line shows what one extra point of inflation would do.
The inflation formulas
Future cost = amount × (1 + r)nToday's value = amount ÷ (1 + r)nCumulative inflation = (1 + r)n − 1 · purchasing power lost = 1 − 1 ÷ (1 + r)nHalving time = ln 2 ÷ ln(1 + r) r = average yearly inflation as a decimal (3% = 0.03) · n = number of years · ln = natural logarithm
Inflation compounds, just like interest. Each year's price rise is applied to prices that have already risen, so 3% a year for 10 years adds up to more than 30%. The halving time is how long it takes for prices to double, which is the same as the time it takes for a sum of cash to lose half its buying power.
Worked example
Something costs $10,000 today and inflation averages 3% a year. After 10 years the growth factor is 1.0310 = 1.3439, so the same purchase costs $13,439. You would need $3,439 more for exactly the same things.
Prices have risen by a cumulative 34.4%. Looked at from the other side, $10,000 kept in cash now buys only 74.4% of what it did, a 25.6% loss of purchasing power. At 3% a year, prices double every 23.4 years (the Rule of 72 estimate is 24).
Switch to "Today's value of future money" and $10,000 received in 10 years is worth $7,441 in today's money. If inflation averaged 4% instead of 3%, the future cost would be $14,802, another $1,363.
What CPI is and where to find it
Inflation is usually measured with a consumer price index (CPI). Statisticians price a fixed "basket" of goods and services that households typically buy, such as food, rent, fuel, clothing, health care and transport, and track how its total cost changes. The percentage change in the index over 12 months is the headline inflation rate you hear in the news.
| Country | Who publishes CPI | Notes |
|---|---|---|
| United States | Bureau of Labor Statistics (BLS) | Monthly CPI. The Federal Reserve's 2% goal uses a related measure, the PCE price index. |
| Australia | Australian Bureau of Statistics (ABS) | Monthly and quarterly CPI. The Reserve Bank of Australia (RBA) targets 2–3%. |
| United Kingdom | Office for National Statistics (ONS) | Monthly CPI, plus CPIH, which adds owner-occupiers' housing costs. The Bank of England targets 2%. |
| Canada | Statistics Canada | Monthly CPI. The Bank of Canada targets 2%, the midpoint of a 1–3% range. |
Many central banks aim for inflation of around 2% a year over time. A little inflation is considered healthy, because falling prices can lead people to delay spending. Targets are goals, not promises: actual inflation can run well above or below them for years at a time, which is why it is worth testing a range of rates in the calculator.
Real vs nominal returns
A nominal return is the number on your statement. A real return is what's left after inflation, which is what actually changes your buying power. The exact formula is:
Real return = (1 + nominal return) ÷ (1 + inflation) − 1 Subtracting inflation from the return is a quick approximation that works well at low rates
If your savings earn 5% and inflation is 3%, your real return is 1.05 ÷ 1.03 − 1 = 1.94% a year, slightly less than the 2% you'd get by subtracting. Cash earning 1% while inflation runs at 3% is quietly shrinking: after 10 years, $10,000 grows to a balance that buys only what $8,219 buys today. Tax makes this worse, because interest is usually taxed on the nominal amount.
This is why long-term plans should be done in today's money. The retirement calculator shows every result both ways, and the compound interest calculator can show growth after inflation. If you are saving for a goal several years away, raise the target by expected inflation before you use the savings goal calculator.
Who wins and who loses from inflation
Inflation hurts anyone holding cash or living on a fixed income, such as a pension or annuity that is not linked to prices. It quietly helps borrowers with fixed repayments, because the repayment stays the same while wages and prices rise around it. A fixed mortgage repayment of $2,000 a month feels like about $1,488 in today's money after 10 years of 3% inflation. You can see your own repayment in the mortgage calculator.
Salaries matter too. A pay rise smaller than inflation is a pay cut in real terms, so when you negotiate, compare the offer with the cumulative inflation figure above for the years since your last raise.
How fast inflation adds up
The difference between "low" and "high" inflation looks small in a single year and huge over a working life:
| Inflation rate | Prices double in | $10,000 of spending in 10 years |
|---|---|---|
| 2% | 35.0 years | $12,190 |
| 3% | 23.4 years | $13,439 |
| 5% | 14.2 years | $16,289 |
| 7% | 10.2 years | $19,672 |
| 10% | 7.3 years | $25,937 |
Tip: for any goal more than five years away, enter the cost today and use "Future cost of today's money" to set your real savings target. A goal that ignores inflation will always come up short.
Remember that the rate you choose is an average. Real inflation moves around from year to year, and some costs, such as insurance, education or health care, can rise faster than the overall index. When the stakes are high, plan with a rate a point or two above the target and treat anything better as a bonus.
Frequently asked questions
How do I calculate the effect of inflation on money?
Why are cumulative inflation and purchasing power lost different numbers?
What inflation rate should I use?
What is the Rule of 72?
Is the official CPI the same as my personal inflation rate?
Can I use this calculator for historical prices?
This calculator gives estimates for education and planning. It is not financial advice, and your lender's figures may differ. See how we calculate.