Inflation Calculator (purchasing power over time)

Why inflation matters for long-term planning

Inflation reduces the purchasing power of money over time. At 2% inflation, $1,000 today buys what $610 buys in 25 years — almost half. At 5% inflation the erosion is dramatic: same $1,000 buys what $295 buys after 25 years. Even 'low' inflation compounds invisibly over decades.

This is why holding cash long-term is a guaranteed loss in real terms unless interest rates exceed inflation. Savings accounts paying 0.5% lose 1.5% per year against 2% inflation. Investments need to outpace inflation just to break even.

Realistic inflation rates by era and country

Long-term US average (since 1913): about 3.2%. Recent decades have been lower (2010s averaged 1.7%) but 2021-2024 spiked to 4-9% in many countries. Most central banks target 2% as 'price stability'.

Japan: famously low (~0% average for 1990-2020) but recently picked up to 2-3%. Eurozone: 1-3% historically, but 6-10% in 2022. UK: similar to Eurozone. Emerging markets (Turkey, Argentina): often double-digit, sometimes hyperinflation.

For long-horizon planning (10+ years), assume 2-3% nominal in stable economies as a baseline. Stress-test with 4-5% to see how a higher-inflation scenario affects you.

Two formulas, two directions

Future cost: FV = PV × (1 + i)^n. To maintain $50,000/year living costs at 2% inflation for 30 years, you'll need $90,568/year then. This is the budget-planning view: how much income or balance you need at a future date.

Present value: PV = FV / (1 + i)^n. Receiving $1M in 25 years at 2.5% inflation is worth about $539,000 today. This is the comparison view: when comparing future cash flows (lottery payouts, pension lump sums, retirement accounts), discount to present value to compare apples to apples.

Compound interest grows money exponentially; inflation shrinks it exponentially. For investments to truly grow, you need a real rate (nominal − inflation) > 0.