Inflation

Prices rise a few percent every year, and that compounds just like interest. What will something cost later, what is an amount worth in today’s money, and how much do your savings really grow once inflation is taken off?

FinanceInflationPurchasing power

Inputs

Input examples

Prices and money over time: the same thing measured in today’s and in future money. Click Solve next to the quantity you want to find. Real return: how much richer your savings make you once rising prices are taken into account. Inflation is assumed constant. For education only — not financial advice.

Currency

Amount today C₀ — a price, or money in today’s value, €

Inflation π — % per year

Years t

Amount in t years C_t — the same thing in future money, €

What is Inflation?

Inflation is the general rise of prices. At 2.5% a year, something that costs 100 today costs 102.50 next year and about 164 in twenty years: prices compound just like interest. Turned around, money loses purchasing power: 100 in twenty years buys only what about 61 buys today.

Interest on savings works against this. What counts is the real return: the interest rate after inflation. Savings at 4% with 3% inflation make you only about 1% richer per year — and with interest below inflation you get poorer, even though the number on your account goes up.

2% a yearprices ×2 in 35 y

real rate≈ i − π

today’s moneydivide by (1+π)^t

i < πyou get poorer

Prices and Purchasing Power

over time

Result

Enter the values above

What 100 Buys Later

in today’s money

Inflation	after 10 years	after 20 years	after 30 years
2%	82.03	67.30	55.21
3%	74.41	55.37	41.20
5%	61.39	37.69	23.14
10%	38.55	14.86	5.73

Worked Techniques

Future Prices

Rising prices compound: every year’s increase is on top of the previous one.

Example: a 3.00 coffee at 2.5% for 20 years: 4.92.

Back to Today’s Money

To compare an amount in the future with today, divide by the growth of prices. This is the same as discounting at the inflation rate.

Example: 1 000 in 10 years at 3%: worth 744.09 today.

Real Interest Rate

The exact real rate is a little below the simple difference. The approximation is fine for low rates.

Example: 4% interest, 3% inflation: real rate 0.971% a year.

Sources & Verification

References

R. A. Brealey, S. C. Myers & F. Allen, Principles of Corporate Finance, 13th ed., McGraw-Hill Education, 2020 — Ch. 2 (How to Calculate Present Values).