Inflation Calculator
Calculate how the purchasing power of your money changes over time due to inflation. See historical data based on US CPI or use a custom inflation rate.
Inflation Calculator
Calculate the effect of inflation on your money's value
What is Inflation?
Inflation is the gradual increase in prices and the corresponding decrease in purchasing power of money over time. It reflects how the value of a currency diminishes as the general price level of goods and services rises.
When there is inflation, each unit of currency buys fewer goods and services than it did in previous periods. This effectively erodes the real value of money, requiring more units of currency to purchase the same items.
Inflation Calculation Formula
The basic formula for calculating the future value of money affected by inflation is:
Where:
- FV (Future Value): The value of money after the inflation period
- PV (Present Value): The initial amount of money
- r: The annual inflation rate (as a decimal)
- n: The number of years
Types of Inflation
Creeping Inflation
Mild inflation with rates around 1-3% annually. Generally considered normal and even healthy for economic growth.
Walking or Moderate Inflation
Inflation rates between 3-10% annually. May signal economic overheating and requires monitoring.
Galloping or Hyperinflation
Severe inflation exceeding 10% annually, potentially leading to economic crisis and requiring immediate intervention.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is the most widely used measure of inflation. It tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The U.S. Bureau of Labor Statistics measures price changes for food, housing, clothing, transportation, medical care, and other goods and services. These are weighted according to their importance in the typical household budget.
How Inflation Affects Your Finances
Decreased Purchasing Power
As prices rise, each dollar buys fewer goods and services, directly reducing your standard of living if your income doesn't increase at the same rate.
Eroded Savings Value
Cash holdings and low-interest savings accounts lose real value during inflation, particularly when interest rates are below the inflation rate.
Investment Returns
Investors need to achieve returns higher than the inflation rate to gain real wealth. Assets like real estate and stocks often perform better than fixed-income investments during inflationary periods.
Retirement Planning
Long-term retirement plans must account for inflation. A seemingly adequate nest egg can become insufficient if inflation erodes its purchasing power over decades.
How to Use This Calculator
- Select either Historical CPI Data (for accurate U.S. historical calculations) or Custom Rate (for general projections).
- Enter your initial amount - the sum of money you want to track through time.
- Set the starting and ending dates (or years and inflation rate for custom calculations).
- Click Calculate to see how inflation affects your money's value over the selected time period.
The results will show you both the new value and the cumulative inflation rate, along with a visual representation of the change.
Frequently Asked Questions
What's the difference between inflation and cost of living?
Inflation measures the general increase in prices across the economy, while cost of living refers to the amount of money needed to maintain a certain standard of living in a specific location. Cost of living can vary by region, while inflation is usually measured nationwide.
How often is CPI data updated?
In the United States, the Bureau of Labor Statistics releases CPI data monthly, typically in the middle of the month following the reference month.
What causes inflation?
Inflation can be caused by demand-pull factors (when demand outpaces supply), cost-push factors (rising production costs), or monetary expansion (increased money supply without corresponding economic growth).