Personal finance
Inflation and purchasing power calculator
Choose what you want to know: what a sum will buy in a few years, what an amount from the past is worth today, or what an investment really earns once inflation is taken out.
What inflation does to your money
Inflation is the general rise in prices. If prices grow by 2.5% a year, after twenty years 1,000 buys what costs about 610 today: purchasing power has shrunk by almost 40%, even though the figure in the account is the same.
The effect compounds, like interest: each year the rise applies to prices that have already grown. That is why yearly rates are not added but their factors (1 + rate) multiplied. With a series of actual rates a past sum can be updated; with an average rate the future can be estimated.
An investment keeps its value only if it earns more than inflation. The real return comes from the Fisher equation: with 4% nominal and 3% inflation the real gain is about 1%, 0.97% to be precise.
Common mistakes
- Adding yearly rates instead of multiplying them: over many years the error grows large.
- Simply subtracting inflation from the return: an approximation that gets worse as rates rise.
- Thinking an account that earns less than inflation is safe: the nominal capital stays, but its real value falls every year.
Frequently asked questions
Where can I find official inflation rates?
National statistics offices publish them: the ONS in the United Kingdom, the Bureau of Labor Statistics in the United States, Eurostat's harmonised HICP for the euro area.
What is the difference between nominal and real return?
Nominal is how much the figure grows; real is how much what it can buy grows. Real = (1 + nominal) / (1 + inflation) − 1.
Can inflation be negative?
Yes, that is deflation: prices fall and money gains purchasing power. It sounds like an advantage but usually comes with economic crises, because it pushes people to delay spending and investment.
How this calculation works
Price index after n years = Π (1 + πₖ), with πₖ the inflation of year k. Future value in today's purchasing power = amount ÷ index; past sum updated = amount × index. Average annual inflation = index^(1/n) − 1. Real return (Fisher) = (1 + nominal) / (1 + inflation) − 1.
Related calculators
Regular investment plan
What a monthly investment in ETFs or funds grows to, after costs and tax.
Bond yield
Gross and net yield to maturity, current yield and duration of a bond.
Compound interest
Solve for capital, rate, periods or final amount using the compound interest formula.
Electricity usage and cost
How many kWh the appliances at home use and what they cost per day, month and year.