Inflation Calculator
Calculate how inflation affects purchasing power over time. See historical value adjustments or project future buying power.
Results
Equivalent Value Today
$1,806.11
Original Amount
$1,000
Value Difference
+$806.11
Purchasing Power Change
-44.63%
Cumulative Inflation
80.61%
Inflation Adjustment Formula
FV = PV x (1 + r)^n
PV = present value, r = inflation rate, n = years
Year-by-Year Breakdown
| Year | Inflation Rate | Cumulative Inflation | Adjusted Value | Purchasing Power |
|---|
Understanding Inflation
Inflation Adjustment
FV = PV x (1 + r)^n
Where FV is future value, PV is present value, r is the annual inflation rate (decimal), and n is the number of years.
Purchasing Power
PP = PV / (1 + r)^n
Calculates how much purchasing power remains after n years of inflation at rate r. Shows real value in today's dollars.
Rule of 72 (Inflation)
Years to Halve = 72 / Inflation Rate
Estimates when purchasing power will halve. At 3% inflation, your money's value halves in about 24 years.
Frequently Asked Questions
Inflation is the rate at which the general level of prices for goods and services rises, causing purchasing power to fall. When inflation occurs, each unit of currency buys fewer goods and services. For example, at 3% annual inflation, $100 today will only have the purchasing power of about $97 next year. Over 20 years, that same $100 would only buy what $55 could buy today.
The average annual inflation rate in the United States has been approximately 3% over the long term, though it varies significantly by time period. From 1913-2023, the average was about 3.2%. Recent decades (1990-2020) saw lower averages around 2.5%, while the 1970s and early 1980s experienced much higher rates of 7-13% annually. The Federal Reserve typically targets a 2% inflation rate.
To calculate purchasing power loss, use the formula: Future Value = Present Value x (1 + inflation rate)^years. For example, to find what $1,000 from 10 years ago is worth today at 3% average inflation: $1,000 x (1.03)^10 = $1,343.92. This means you would need $1,343.92 today to have the same purchasing power as $1,000 had 10 years ago. Conversely, $1,000 today has the purchasing power of only $744.09 in 10-year-old dollars.
Understanding inflation is crucial for financial planning because it affects retirement savings, investment returns, and purchasing power. If your savings grow at 5% but inflation is 3%, your real return is only 2%. For retirement planning, you need to account for inflation over 20-30 years. A $50,000 annual retirement income today might need to be $90,000 in 20 years at 3% inflation to maintain the same lifestyle.
Inflation is caused by several factors: 1) Demand-pull inflation occurs when demand for goods exceeds supply. 2) Cost-push inflation happens when production costs rise. 3) Monetary inflation results from increases in money supply. 4) Built-in inflation occurs when workers expect prices to rise and demand higher wages. Central banks like the Federal Reserve use interest rates and monetary policy to control inflation, typically targeting around 2% annual inflation for economic stability.