Inflation Calculator

Inflation is the rate at which the general level of prices for goods and services rises, causing purchasing power to fall. If inflation is 3% per year, something that costs $100 today will cost about $103 next year. Over time, this significantly reduces the real value of money. For example, $10,000 with 3% annual inflation will only have the purchasing power of about $7,440 after 10 years.

Enter the amount of money you want to analyze, the inflation rate (average annual percentage), and the time period in years. The calculator will show you the future nominal value, the equivalent purchasing power in today's dollars, and how much real value has been lost to inflation. You can also reverse the calculation to see what amount today would equal a future amount.

Historical average inflation in the U.S. has been around 3-3.2% per year over the long term. However, inflation varies significantly by year and decade. The 2010s saw inflation around 1.5-2%, while the 1970s experienced 7-8% average inflation. For long-term planning (20+ years), using 3% is reasonable. For conservative planning, you might use 3.5-4%. Always check current economic conditions for short-term estimates.

Nominal value is the face amount of money without adjusting for inflation - the actual dollar figure. Real value (or "real dollars") is the purchasing power adjusted for inflation - what those dollars can actually buy. For example, $50,000 salary in 1990 had much more purchasing power (real value) than $50,000 today, even though the nominal value is the same.

Inflation significantly impacts retirement planning because it reduces the purchasing power of your savings over time. If you retire with $1 million and inflation averages 3%, after 20 years that money will only buy what $554,000 buys today. This is why financial advisors recommend that retirement investments should aim to return more than the inflation rate to grow real wealth, not just nominal wealth.

Yes! You can calculate what past dollars are worth in today's money or vice versa. For example, if you want to know what $10,000 from 1990 is worth today (assuming average 3% inflation over ~34 years), enter the amount and time period. This is useful for comparing historical prices, salaries, or understanding economic changes over time.

To protect against inflation, invest in assets that historically outpace inflation: stocks (average 7-10% long-term returns), real estate, Treasury Inflation-Protected Securities (TIPS), commodities, or I-Bonds. Money in regular savings accounts typically earns less than inflation, causing real wealth to decrease over time. Diversified investments that grow faster than inflation help preserve and increase purchasing power.

The Consumer Price Index (CPI) measures the average change in prices paid by consumers for goods and services over time. It's the most common measure of inflation. When you hear "inflation is 3%," that typically refers to the CPI increase. The CPI tracks prices of a "basket" of common goods and services including food, housing, transportation, healthcare, and education.

No, different categories experience different inflation rates. Healthcare and education costs often rise faster than average inflation (sometimes 5-8% annually), while technology prices often fall. Housing, food, and energy costs can vary significantly year to year. The CPI is an average across categories, so your personal inflation rate may differ based on your spending patterns.

The inflation rate compounds annually, similar to interest. A higher rate dramatically increases the loss of purchasing power over time. At 2% inflation, money loses about 18% of its value over 10 years. At 3%, it loses 26%. At 5%, it loses 38%. Small differences in the inflation rate have large impacts over long periods due to compounding effects.

Real return is your investment return minus inflation. If your investment gains 8% but inflation is 3%, your real return is about 5%. This 5% represents the actual increase in purchasing power. When planning investments, always consider real returns - nominal returns that don't beat inflation mean you're losing purchasing power despite seeing account balances grow.

Yes, negative inflation is called deflation, where prices decrease over time. While this sounds good, it can indicate economic problems and is generally bad for the economy. It encourages people to delay purchases (waiting for lower prices), which reduces business activity. Japan experienced prolonged deflation in the 1990s-2000s. Most central banks target low positive inflation (around 2%) as healthiest for the economy.

Inflation calculations are estimates based on assumed rates. Actual inflation varies year by year and is influenced by many factors: monetary policy, supply and demand, global events, energy prices, etc. Use these calculations as planning tools with reasonable assumptions, not guaranteed predictions. It's wise to run scenarios with different inflation rates (e.g., 2%, 3%, and 4%) to understand the range of possible outcomes.