Inflation Calculator Guide

Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. This calculator helps you understand how the value of money changes over time.

How Inflation Affects You

Inflation means that $100 today won't buy as much in 10 years as it does now. Understanding this "invisible tax" is crucial for: Salary Negotiations: If your raise is 3% but inflation is 5%, you actually took a 2% pay cut in "real" terms. Retirement Planning: You need to know how much your future retirement nest egg will actually be worth in "today's dollars." * Long-Term Savings: If your savings account earns 1% and inflation is 3%, your wealth is shrinking.

The Formula

To calculate the future value of money adjusted for inflation, we use the compound interest formula in reverse:

FV = PV × (1 + i)^n

Where: FV: Future Value (the amount needed in the future) PV: Present Value (the amount today) i: Average annual inflation rate (as a decimal) n: Number of years

Simple Example

If you want to know what $100 will be worth in 20 years with an average inflation rate of 3%:

Equation: $100 × (1 + 0.03)^20
Calculation: $100 × 1.806
Result: $180.61

This means you would need $180.61 in 20 years to have the same purchasing power as $100 today.

Tips for Hedging Against Inflation

Invest in Real Assets: Real estate and commodities often rise in value along with inflation.
The Stock Market: Historically, stocks have outperformed inflation over the long term.
TIPS (Treasury Inflation-Protected Securities): These are bonds specifically designed to increase in value as inflation rises.

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Disclaimer: Inflation rates fluctuate and are based on complex economic indices like the CPI (Consumer Price Index). This calculator uses historical averages or user-inputted estimates.

Inflation & Purchasing Power

Inputs

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Calculated by CalcuFinance Team

Sources & References

Inflation Calculator Guide

How Inflation Affects You

The Formula

Simple Example

Tips for Hedging Against Inflation