Inflation Calculator
See how inflation changes the real value of your money and what things will cost in the future.
Calculate the Impact of Inflation
What Is Inflation?
Inflation is the rate at which the general level of prices for goods and services rises over time. As prices increase, each unit of currency buys fewer items than it did before, which means the purchasing power of money decreases.
Inflation is typically measured as an annual percentage. For example, a 3% inflation rate means that something costing $100 today would cost about $103 one year from now. Over many years this effect compounds, causing significant price increases and a corresponding decline in the real value of savings.
Central banks aim to keep inflation at a moderate level (often around 2%) to encourage spending and investment while maintaining price stability.
How Inflation Affects Purchasing Power
The compound inflation formula shows what an amount of money will be equivalent to in the future:
The loss of purchasing power is the difference between the future value and the original amount:
This means that if you hold cash without earning any return, inflation steadily reduces what your money can buy. To preserve purchasing power, your investments need to earn a return that at least matches the inflation rate.
Example Inflation Calculation
Suppose you have $1,000 today and the average inflation rate is 3% per year for the next 10 years.
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Frequently Asked Questions
What inflation rate should I use?
The long-term historical average in the United States is roughly 3% per year. Recent years have seen both lower and higher rates. For conservative planning, 3% is a reasonable default. Check your country's central bank for current data and adjust as needed.
Does inflation affect investments?
Yes. Inflation reduces the real return on investments. If your portfolio earns 7% and inflation is 3%, your real return is approximately 4%. When comparing investment options, always consider returns after inflation to understand actual purchasing power growth.
How can I protect my money from inflation?
Common strategies include investing in stocks, real estate, or inflation-protected securities (like TIPS in the US). Keeping large amounts in cash or low-yield savings accounts causes your money to lose value in real terms over time. Diversifying across asset classes is generally the best defense.
Popular Inflation Guides
Protect Your Purchasing Power
Inflation gradually reduces what your money can buy. To preserve your purchasing power over time, consider savings vehicles that offer returns above the inflation rate, such as Treasury inflation-protected securities or diversified investment portfolios.
How to Put Your Money to Work Against Inflation
Cash held in a low-yield account loses purchasing power in real terms every year. Several account types and asset classes are specifically designed to maintain or grow value relative to inflation:
- I-Bonds — U.S. Treasury I-Bonds pay a composite rate that adjusts with CPI twice per year; currently capped at $10,000 per person annually through TreasuryDirect.gov
- TIPS — Treasury Inflation-Protected Securities adjust their principal with the CPI; available directly through TreasuryDirect or through low-cost TIPS ETFs
- High-yield savings accounts — in higher-rate environments, HYSAs can substantially offset inflation on your liquid emergency fund while keeping it accessible
- Broad equities — over long periods, diversified stock market returns have historically outpaced inflation by approximately 5%–6% per year in real terms
- Real assets — real estate and commodities often correlate with inflation over time, though they carry higher complexity, costs, and liquidity constraints than financial assets