Inflation
Purchasing power over time
About This Calculator
Inflation measures how the purchasing power of money changes over time as prices rise. What costs $1 today will cost more in the future if inflation is positive. The inflation calculator shows how much a past amount is worth in today's dollars, or how much you need in the future to match today's purchasing power.
Formula
Future value: FV = PV × (1 + r)ⁿ
Present value: PV = FV / (1 + r)ⁿ
r = annual inflation rate, n = years
Purchasing power loss = (1 − 1/(1+r)ⁿ) × 100%
Example Calculation
How much will $1,000 be worth in 20 years at 3% inflation?
- FV = 1000 × (1 + 0.03)²⁰ = 1000 × 1.8061 = $1,806
- To maintain $1,000 purchasing power today, you will need $1,806 in 20 years
Purchasing power declines: $1,000 today ≈ $553 in real terms after 20 years
Purchasing Power of $1,000 Over Time
| Years | 2% inflation | 3% inflation | 5% inflation | 8% inflation |
|---|---|---|---|---|
| 5 | $906 | $863 | $784 | $681 |
| 10 | $820 | $744 | $614 | $463 |
| 20 | $673 | $554 | $377 | $215 |
| 30 | $552 | $412 | $231 | $99 |
Frequently Asked Questions
What causes inflation?
Inflation is driven by demand-pull (too much money chasing too few goods), cost-push (rising production costs), and monetary factors (increase in money supply). Central banks target around 2% annual inflation as healthy for economic growth.
How is inflation measured?
The most common measure is the Consumer Price Index (CPI), which tracks the price of a basket of typical consumer goods and services. The PCE (Personal Consumption Expenditures) index is preferred by the US Federal Reserve.
What is hyperinflation?
Hyperinflation is extremely rapid inflation (often >50% per month). Historical examples include Germany (1921-23), Zimbabwe (2008), and Venezuela (2018). It destroys savings and economic stability, often triggered by excessive money printing.
How can I protect savings from inflation?
Common inflation hedges include: investing in stocks (companies can raise prices), real estate (values tend to rise with inflation), TIPS (Treasury Inflation-Protected Securities), commodities, and I-bonds. Keeping cash loses purchasing power in high-inflation environments.