Inflation Calculator

How to use this calculator#

1. 1
   Enter the amount and the two yearsOrder matters only for direction. Start year before end year converts old money into new; reverse them and the calculator discounts new money back into old, which is how you compare a 1985 salary with today's.
2. 2
   Choose an average annual rateFor long historical spans in the US or UK, 3% is a reasonable long-run average. For forward-looking estimates, 2% matches most central bank targets. For a specific decade, use that decade's actual average — the 1970s and the 2010s are barely the same phenomenon.
3. 3
   Read both outputs, not just the firstThe equivalent value tells you what a sum needs to become. The purchasing power figure tells you what it has been reduced to. They are different numbers describing the same erosion, and confusing them overstates the damage.
4. 4
   Try a rate a point or two higherHeadline CPI is a population-average basket. If your spending is concentrated in housing, childcare, university fees or medical care, your personal inflation rate has run above the official one for decades.

The formula#

Inflation compounds like interest#

Future value = amount x (1 + rate)^years. At 3% a year, 1,000 has to become 1,343 after ten years and 1,806 after twenty just to stand still. Flip the exponent to look backwards: dividing by (1 + rate)^years converts a sum from the past into today's money, which is how you compare a 1985 salary with a 2025 one.

Purchasing power moves the other way and never falls as fast as prices rise. After a 34.4% price increase, the same 1,000 buys what 744 bought before — a 25.6% loss of purchasing power, not 34.4%. The two are linked by 1 / (1 + inflation), and treating them as the same number consistently overstates the damage.

Picking a rate#

Long-run US CPI inflation has averaged roughly 3% a year since 1913 and UK figures a little more, but decades diverge sharply: the 1970s ran near 7-8% annually while the 2010s sat below 2%. The 2021-2023 energy and supply shock pushed many countries above 8% before easing. Most central banks target 2%, which is a sensible default for forward-looking estimates.

Your personal inflation rate rarely matches the headline. CPI baskets are population averages, and housing, university fees, childcare and medical costs have risen far faster than electronics or clothing. If most of your spending sits in the fast-rising categories, model a rate a point or two above the official number and treat the result as the realistic case.

What it means for savings and pay#

A savings account paying 2% while inflation runs at 4% loses 2% of real value every year, even though the balance on the statement keeps rising. The same arithmetic applies to wages: a 3% raise in a 5% inflation year is a real-terms pay cut. Always compare a nominal return or increase against inflation before concluding you are ahead.

Worked examples#

Reference tables#

Common mistakes#

• Subtracting the price rise to get purchasing powerIf prices rise 25%, money does not lose 25% of its value — it loses 20%, because $1,000 now buys what $800 used to. Subtracting instead of inverting overstates the loss on every calculation, and the error grows with the rate.
• Adding annual rates instead of compounding themThree years at 8%, 6% and 4% is not 18%. It is 1.08 × 1.06 × 1.04 = 19.06%. Over long or volatile periods the additive shortcut understates cumulative inflation substantially.
• Judging a nominal return without deflating itA savings account paying 4% while inflation runs at 5% loses roughly 1% of real value a year, even though the statement balance keeps rising. Nominal growth and real growth point in opposite directions more often than people expect.
• Assuming the official basket matches yoursCPI weights an average household's spending. Housing, childcare, university tuition and medical care have risen far faster than clothing or electronics in most developed economies, so a young family's lived inflation rate can sit well above the headline for years at a time.

Frequently asked questions#

Key terms#

CPI (consumer price index)

An index tracking the price of a fixed basket of goods and services bought by a typical household. The usual basis for the headline inflation rate.

Purchasing power

What a fixed sum of money can actually buy. It falls as prices rise, but always by less than the percentage prices rose.

Real vs nominal

Nominal figures are in the money of the day; real figures are adjusted for inflation. A 5% nominal return in a 3% inflation year is a 2% real return.

Deflation

A sustained fall in the general price level. It raises purchasing power but usually signals weak demand and encourages people to postpone spending.

Rule of 70

Divide 70 by the annual rate to estimate years until prices double. At 3.5% that is 20 years.

Core inflation

Inflation excluding food and energy, whose prices swing sharply. Central banks watch it to read the underlying trend rather than the last oil shock.

Sources#