Inflation Calculator

Inflation is the rate at which prices rise over time, eroding what your money can buy. It matters for savings, retirement planning, salary negotiation, and anything else where money sits still for years.

Two ways to look at the same thing

Prices going up and money buying less are the same fact viewed from opposite ends, and the calculator shows both:

Future price = Present price × (1 + inflation rate)ⁿ

Future purchasing power = Current amount ÷ (1 + inflation rate)ⁿ

The first answers “what will this cost me later”. The second answers “what will my money be worth later”. They are not symmetric, and that trips people up. At 3% over 20 years, a $30,000 cost rises to $54,183, a rise of 81%. But $30,000 of cash falls to $16,610 of purchasing power, a fall of 45%. A price going up 81% and money losing 45% describe the identical amount of inflation.

Worked examples

Cost of living in 20 years: Current annual expenses: $30,000, average inflation 3%. In 20 years: $30,000 × 1.03²⁰ = $30,000 × 1.8061 = $54,183

Salary keeping pace: Salary $35,000 with 4% inflation this year. To stand still you need $35,000 × 1.04 = $36,400. A 3% raise in a 4% year is a pay cut, which is worth remembering before you say thank you.

Real return on savings: A savings account paying 4% with inflation at 3% is not earning you 1%. Real return = ((1 + 0.04) ÷ (1 + 0.03)) − 1 = 0.97% Close to 1%, but the subtraction shortcut drifts further from the truth as rates rise. At 12% interest and 9% inflation the real return is 2.75%, not 3%.

Rule of 70: Divide 70 by the inflation rate for the years it takes prices to double. At 3.5%: 70 ÷ 3.5 = 20 years. At 7%: 70 ÷ 7 = 10 years. At 2%, the target most central banks aim for, 35 years.

Some historical context

US inflation averaged roughly 2.5% from 1990 to 2020, then spiked to 9.1% in June 2022, the highest since 1981. The UK peaked slightly later and higher, at 11.1% in October 2022. Both were driven by the same combination of pandemic supply disruption and energy prices.

Long-run averages hide a lot. The US averaged about 3% across the last century, but that single figure covers deflation in the 1930s and 13.5% in 1980.

Protecting against inflation:

• Inflation-linked government bonds (TIPS in the US, index-linked gilts in the UK)
• Equities, which have historically outpaced inflation over long horizons while doing nothing of the sort over short ones
• Property, which tracks inflation reasonably well over decades
• Not cash. A savings account paying less than inflation is losing you money slowly enough that it feels safe.