Inflation Calculator
This inflation calculator helps you understand how inflation affects your purchasing power over time. Enter an amount, time period, and inflation rate to see how the value of money changes.
How the Inflation Calculator Works
The inflation calculator uses the compound interest formula to calculate how inflation affects the value of money over time:
Future Value (Inflation Effect)
To calculate the future value of money considering inflation:
Where:
- FV = Future Value
- PV = Present Value (Initial Amount)
- i = Annual Inflation Rate (as a decimal)
- n = Number of Years
Past Value (Inflation Adjustment)
To calculate what a current amount would have been worth in the past:
Cumulative Inflation
The total inflation over the entire period is calculated as:
Purchasing Power
The change in purchasing power is calculated as:
Understanding Inflation
Inflation is the rate at which the general level of prices for goods and services rises, causing purchasing power to fall over time. Here's what you need to know:
Historical Inflation Rates
- Low Inflation (1-3%): Generally considered healthy for economic growth
- Moderate Inflation (3-6%): May indicate a growing economy but can be concerning
- High Inflation (6%+): Can be harmful to economic stability
- US Historical Average: Approximately 3.24% annually from 1913-2023
Effects of Inflation
- Reduces purchasing power of money over time
- Erodes the real value of cash savings
- Can benefit borrowers with fixed-rate loans
- May increase the nominal value of assets like real estate
Protecting Against Inflation
- Invest in assets that historically outpace inflation (stocks, real estate)
- Consider inflation-protected securities (TIPS)
- Diversify investments across different asset classes
- Negotiate cost-of-living adjustments in long-term contracts