Inflation Impact Calculator

Amounts and purchasing power

When prices rise, unchanged cash buys fewer goods and services. The future amount needed to preserve purchasing power equals the initial amount multiplied by cumulative price growth. To express unchanged cash in today's purchasing power, divide by that same factor.

Example

With an initial amount of 1000 and inflation of 10 percent for two years, the equivalent future cost is 1210. Unchanged cash of 1000 then has purchasing power of about 826.45 at today's prices. This rate is an illustration, not a forecast.

Real returns

Adjusting a nominal return for inflation requires dividing growth factors. A 21 percent return with 10 percent inflation gives a 10 percent real return. Subtracting the rates is only an approximation at low rates. Taxes and expenses need separate consideration.

Track different meanings of the same amount

Use initial amount 500, annual inflation 25 percent, nominal return 50 percent and one year. The future amount needed for the same purchasing power is 500 × 1.25 = 625. Unchanged money has purchasing power 500 / 1.25 = 400 at today's prices. Nominal accumulation is 500 × 1.50 = 750 and its real value is 750 / 1.25 = 600. Annual real return is 1.50 / 1.25 − 1 = 0.20, or 20 percent. Rates are examples only.

The future amount needed and the future amount earned are different outputs. One follows prices, the other follows the entered return. A larger nominal amount does not always mean a real gain. Return and inflation must refer to the same period and compounding basis.

Multiplying an annual rate directly by a longer duration does not reproduce compounding. This tool applies the same rate each year. Different annual rates need separate period factors. A personal spending basket can change differently from the general price level. Do not interpret the result as a price forecast or a guarantee of purchasing power.

Frequently asked questions

How do you calculate purchasing power with an inflation rate?

With an example annual inflation rate of 10 percent over 2 years, an unchanged amount of 1000 currency units has purchasing power of 826.45 in today’s money. The fixed amount is divided by the compound price growth factor, and this preliminary estimate assumes constant inflation while excluding taxes and individual spending patterns.

Calculate with these values