Inflation Calculator

What inflation actually does to your money

Inflation is the gradual rise in the price of goods and services. A dollar bill does not shrink, but what it buys does: if prices rise 3% a year, the same basket of groceries costs 3% more next year, so each dollar quietly buys a little less. This calculator uses a single inflation rate that you choose rather than historical price data, which keeps the math transparent and lets you test any scenario. If you want a reasonable default, the long-run US average has been around 3% per year, though any given decade can run well above or below that.

The formula behind both numbers

Everything on this page comes from one compounding factor:

factor = (1 + r)n

where r is the annual inflation rate and n is the number of years. The calculator then answers two mirror-image questions. First, what will today's amount be worth in future purchasing power? That is amount ÷ factor — your money divided by how much prices have grown. Second, how much will you need in the future to buy what that amount buys today? That is amount × factor. The two results are reciprocal views of the same erosion, which is why the "needed" number grows exactly as fast as the "buying power" number shrinks.

A worked example

Take $10,000 today over 20 years at 3% inflation. The compounding factor is 1.03 raised to the 20th power, which is about 1.806. Dividing, $10,000 will buy only what about $5,537 buys today — a loss of roughly $4,463 in purchasing power, or close to 45%. Flipping it around, you would need about $18,061 in 20 years to purchase what $10,000 purchases now. Stretch the horizon to 30 years at the same rate and the numbers get starker: about $4,120 of buying power remaining, and about $24,273 needed to keep pace. Nothing dramatic happens in any single year; the damage comes entirely from compounding.

Why small rate differences matter

• 2% vs 3% is not close: over 20 years, $10,000 keeps about $6,730 of buying power at 2% but only about $5,537 at 3%.
• High-inflation stretches bite hard: at 5%, the same $10,000 holds just about $3,769 of today's buying power after 20 years.
• Cash is exposed: money earning less than inflation is losing ground every year, even though the account balance never goes down.
• Long goals need inflated targets: a retirement or college number set in today's dollars should be grown by the factor above before you treat it as a savings goal.

What this calculator leaves out

Real inflation is not a constant — it varies year to year and by category, and your personal inflation rate depends on what you buy. Housing, healthcare, and education have often risen faster than the headline average, while many goods have risen slower. This tool also says nothing about investment returns: it tells you what your target should be, not how to reach it. Use it alongside a savings or retirement calculator to see whether your expected returns actually outpace the rate you entered.