Inflation Calculator

How it works

Inflation compounds, which is why its long-term effect surprises people. A price rises each year by the inflation rate applied to the new, higher price, so the future cost of something priced at P today is P x (1 + r)^n after n years at rate r. At 3 percent inflation, a $1,000 expense today costs about $1,344 in ten years and about $1,806 in twenty. The mirror image is purchasing power: cash held still loses value at the same compound rate, so $1,000 kept in a drawer for ten years at 3 percent inflation buys only about $744 worth of today's goods. A handy shortcut is the rule of 72: divide 72 by the inflation rate to estimate how many years prices take to double. US inflation has averaged close to 3 percent over the very long run, but individual years vary widely, and your personal inflation rate depends on your spending mix, housing, healthcare and education costs often rise faster than the headline figure. When planning savings or investments, what matters is the real return: your return minus inflation. Money earning less than inflation is shrinking in purchasing power even while its balance grows.