What Is Inflation?
The Federal Reserve states it plainly: inflation is the increase in the prices of goods and services over time, and it cannot be measured by the price of one product or even several. What counts is the general price level across the whole economy.
A general price level, not one price
In any year that inflation runs at 3%, individual prices scatter around that figure — electronics fall while rent, insurance and services climb faster than the headline. The published rate is a weighted average over a fixed basket of what households actually buy. The Bank of England describes the machinery behind its own measure: each month the Office for National Statistics collects around 180,000 prices covering about 700 items to build the UK Consumer Prices Index. Statistics offices elsewhere work the same way, with different baskets and different weights.
That is why the number in the news can feel wrong. It is an average over a basket that is not yours.
What the rate actually means
An inflation rate is a rate of change, not a level. Three percent means the basket costs 3% more than it did twelve months earlier; it says nothing about whether prices are high or low, only about how fast they are moving. And because each year's rise is applied to the already-risen price, the effect compounds. Running $1,000 forward at 3% shows it:
- Year 1: $1,030.00
- Year 2: $1,060.90 — not $1,060, because the second 3% is charged on $1,030
- Year 3: $1,092.73
- Year 5: $1,159.27, a 15.9% total rise out of five annual steps of 3%
Over five years the gap between the naive 15% and the true 15.9% is trivial. Over thirty it is not: thirty flat steps of $30 would give $1,900, while the compounding gives $2,427.26. Inflation compounds exactly the way interest does, and it never takes a year off.
Where the official number comes from
Two indexes dominate US reporting and they do not agree. The Federal Open Market Committee aims for inflation of 2 percent over the longer run as measured by the annual change in the price index for personal consumption expenditures (PCE), produced by the Department of Commerce; it also tracks the consumer price indexes and producer price indexes issued by the Department of Labor. The Bank of England's 2% target is set against CPI instead, because that is the measure the UK government specifies.
So "the" inflation rate is really several rates, measured on different baskets by different agencies, and 2% is a policy objective rather than a natural constant. Typing a rate into this calculator is choosing which of those stories to plan around.
Inflation, disinflation and deflation
Disinflation is a falling inflation rate that is still positive: prices rising, but more slowly. Deflation is a negative rate — prices actually falling, and money gaining purchasing power. The three terms get used interchangeably in conversation and they describe very different situations.
No special setting is needed for the negative case. Enter −2 as the rate and run $1,000 forward over 10 years: the answer is $817.07, because a basket that costs $1,000 now costs less a decade later.
How Do You Calculate Inflation?
Two different questions hide inside that phrase. One is moving money across time at a rate you already know — that is what this calculator does. The other is working out the rate itself from two prices or two index readings. Both formulas are below, and they are inverses of each other.
The formula this calculator uses
A single equation, run in either direction:
Forward — what an amount must become
Adjusted = Amount × (1 + r)^n
Backward — what an amount is worth in today's money
Adjusted = Amount ÷ (1 + r)^n
r = annual inflation rate as a decimal (3% → 0.03)
n = number of years
Multiplying or dividing by the same factor is the entire difference between the two modes, which is why a result fed back through the opposite direction returns exactly what you started with: $1,000 forward 20 years at 3% is $1,806.11, and $1,806.11 backward 20 years at 3% is $1,000.00.
Step by step
By hand or on this page, the order is the same:
- Choose the direction. Future Value moves money forward in time; Past Value brings it back to today.
- Enter the amount — a price, a salary, a balance, any single sum in one currency.
- Enter the number of years between the two points in time. Decimals are accepted, so 10.5 works.
- Enter the annual inflation rate as a percentage, not a decimal: type 3, not 0.03.
- Press Calculate. The answer is one number to two decimal places, in the currency you entered.
The page does not calculate on load, because all three number fields start empty. Fill them in and submit.
Worked example: $100 forward, 10 years, 3%
A service costs $100 today. What should the same service cost in ten years if prices rise 3% a year?
Adjusted = 100 × (1 + 0.03)^10 Adjusted = 100 × 1.343916 Adjusted = 134.39
- Amount $100 · 10 years · 3% · Future Value
- $134.39
Read that as a future price tag, not as a savings target. In ten years it takes $134.39 to buy what $100 buys now — a 34.4% rise produced by ten steps of 3%.
Worked example: $100 backward, 10 years, 3%
Now flip the direction. You have a figure and want to know what its buying power was, or what today's money would have bought back then.
Adjusted = 100 ÷ (1 + 0.03)^10 Adjusted = 100 ÷ 1.343916 Adjusted = 74.41
- Amount $100 · 10 years · 3% · Past Value
- $74.41
$100 of today's money carries the buying power that $74.41 carried ten years ago. Put the other way round, 25.6% of the purchasing power has gone.
The other formula: finding the rate itself
If you know two prices — or two CPI readings — you can back out the rate instead of assuming one. This is the calculation behind every "inflation was X% last year" headline.
Total change over the period (%) = (New − Old) ÷ Old × 100 Annual rate (%) = [ (New ÷ Old)^(1/n) − 1 ] × 100
- Say a sandwich cost $3.50 twenty years ago and costs $6.20 now: (6.20 − 3.50) ÷ 3.50 × 100 = 77.1% in total.
- Annualized: (6.20 ÷ 3.50)^(1/20) − 1 = 0.0290, which is 2.90% a year.
That result checks out against the calculator: $3.50, 20 years, 2.90%, Future Value returns $6.20. With official statistics you use identical arithmetic, putting the two index readings where the two prices go — only the ratio between them matters, so the index's base year is irrelevant.
The exponent doing the work here is the same one behind compounding returns — watch it run in your favor instead with the Compound Interest Calculator.
Inflation Chart: What $1,000 Does at Different Rates
Every figure in these tables came out of the calculator on this page, with $1,000 as the amount. Find your rate across the top and your horizon down the side.
What $1,000 must become to keep pace
Future Value mode. Read each cell as the price tag on a $1,000 basket after that many years of steady inflation.
| Years | 2% | 2.5% | 3% | 4% | 5% |
|---|---|---|---|---|---|
| 5 | $1,104.08 | $1,131.41 | $1,159.27 | $1,216.65 | $1,276.28 |
| 10 | $1,218.99 | $1,280.08 | $1,343.92 | $1,480.24 | $1,628.89 |
| 15 | $1,345.87 | $1,448.30 | $1,557.97 | $1,800.94 | $2,078.93 |
| 20 | $1,485.95 | $1,638.62 | $1,806.11 | $2,191.12 | $2,653.30 |
| 25 | $1,640.61 | $1,853.94 | $2,093.78 | $2,665.84 | $3,386.35 |
| 30 | $1,811.36 | $2,097.57 | $2,427.26 | $3,243.40 | $4,321.94 |
The spread across the bottom row is the lesson. Thirty years at the 2% central-bank target turns $1,000 into $1,811.36; at 5% the same $1,000 becomes $4,321.94. On a long horizon the rate you assume matters more than any other input on this page.
What $1,000 will still buy
Past Value mode, same rates and horizons. This is the purchasing power left in $1,000 of cash that earns nothing at all.
| Years | 2% | 2.5% | 3% | 4% | 5% |
|---|---|---|---|---|---|
| 5 | $905.73 | $883.85 | $862.61 | $821.93 | $783.53 |
| 10 | $820.35 | $781.20 | $744.09 | $675.56 | $613.91 |
| 15 | $743.01 | $690.47 | $641.86 | $555.26 | $481.02 |
| 20 | $672.97 | $610.27 | $553.68 | $456.39 | $376.89 |
| 25 | $609.53 | $539.39 | $477.61 | $375.12 | $295.30 |
| 30 | $552.07 | $476.74 | $411.99 | $308.32 | $231.38 |
At 3%, twenty years of doing nothing costs 44.6% of the money's value — $1,000 ends up buying $553.68 worth of goods. Thirty years costs 58.8%. Neither figure requires a crash, a crisis or a policy mistake; it is what an on-target economy does to idle cash.
How long until buying power halves
A shortcut worth memorizing: divide 70 by the inflation rate for a rough number of years until money loses half its value. The last column shows what the calculator actually returns at the whole-year horizon the shortcut points to, so you can see how far off it lands.
| Inflation rate | Rule of 70 (years) | Exact halving point (years) | $1,000 after the whole years shown |
|---|---|---|---|
| 2% | 35.0 | 35.00 | $500.03 at 35 years |
| 3% | 23.3 | 23.45 | $506.69 at 23 years |
| 4% | 17.5 | 17.67 | $493.63 at 18 years |
| 5% | 14.0 | 14.21 | $505.07 at 14 years |
| 7% | 10.0 | 10.24 | $508.35 at 10 years |
| 10% | 7.0 | 7.27 | $513.16 at 7 years |
The rule is exact at 2% and drifts as the rate climbs, always running short — it approximates a logarithm rather than computing one. At 10% it says seven years when the true halving point is 7.27. Close enough for a conversation, not close enough for a contract.
How to Read Your Result
The panel returns one number and no currency symbol; the currency is whatever you typed into the amount field. What the number means depends entirely on the direction you chose, and confusing the two is the most common way to misread an inflation figure.
Future Value: a price, not a savings target
In Future Value mode the answer is what the same goods will cost. It is not the balance you need to have saved, because savings normally earn something along the way. A $250 grocery run at 3% inflation is a $257.50 grocery run a year later — the shopping is identical, the receipt is not.
The distinction matters most on long horizons, where people quote a future cost and then treat it as a savings goal that has to be reached in today's dollars. Those are two different numbers, and only one of them is on this page.
Past Value: everything in today's money
Past Value strips inflation back out and restates a figure in current money. It is the mode for comparing across years — a 1995 salary against today's, a childhood ticket price, last decade's project budget. Raw numbers from different years are quoted in different units, and this puts them in the same one.
Economists call the restated figure a real value and the untouched one a nominal value. Almost every argument about whether something "used to be cheaper" is really an argument about which of those two is being quoted.
Turning the result into a percentage
Divide the result by the amount you entered, subtract one, multiply by a hundred:
Change (%) = (Result ÷ Amount − 1) × 100
- $1,000 → $1,806.11 over 20 years at 3%: prices are 80.6% higher.
- $1,000 → $553.68 over 20 years at 3%: 44.6% of the buying power is gone.
Those are the same fact seen from two ends, and they are deliberately not the same percentage. An 80.6% rise in prices is a 44.6% fall in what money buys. A rise and its matching fall never share a percentage, which is exactly why "prices doubled" and "money halved" describe one event in two very different-sounding numbers.
Quote whichever fits the argument you are making, but say which one it is. A headline that mixes them is not wrong so much as unreadable.
Real return: what is left after inflation
The most useful thing this calculator does is audit a return. Put $10,000 into something paying 4% a year and after ten years you hold $14,802.44 — a 48.0% nominal gain. Run that $14,802.44 backward for 10 years at 3% inflation and it is worth $11,014.41 in today's money: a real gain of 10.1%, or about 0.97% a year.
Subtracting the rates is a decent rough answer (4% − 3% = 1%); the exact version divides the growth factors, 1.04 ÷ 1.03 − 1 = 0.97%. A few instruments track inflation by design — the US Treasury sells TIPS in 5-, 10- and 30-year terms, with principal that moves with the index — but an ordinary savings account does not, which is why the check is worth running before assuming a balance is really growing.
Inflation Examples: Pay, Savings and Retirement
Three cases where this arithmetic changes a decision rather than merely satisfying curiosity. Every figure below is calculator output at the inputs stated with it.
A salary that has not moved in five years
Suppose you earned $52,000 five years ago and earn $52,000 now, and prices rose an average of 3.8% a year over that stretch. Future Value on $52,000, 5 years, 3.8% returns $62,659.96 — that is what the same job would have to pay today to be the same offer. The pay packet is $10,659.96 short of standing still.
The mirror view is equally blunt: run $52,000 backward on the same settings and it is $43,153.55. Nobody announced a pay cut, and a pay cut happened anyway. This is also the arithmetic to bring to a raise conversation — a 2% raise against 3.8% inflation is a reduction with a positive number in front of it.
Convert the same figure between hourly, weekly, monthly and annual before comparing offers with the Salary Calculator.
An emergency fund in a zero-interest account
Leave $25,000 in a checking account for five years at 3% inflation and the statement still says $25,000. Run it backward — $25,000, 5 years, 3%, Past Value — and the calculator returns $21,565.22. The account gave up $3,434.78 of purchasing power without a single withdrawal.
That is an argument for holding only what you genuinely need in cash, not an argument for putting an emergency fund at risk. The whole point of that money is that it is there on the day you need it, and a 13.7% erosion over five years is a fair price for certainty. The number is still worth seeing before you decide how large the fund should be.
A retirement number quoted in future dollars
A plan promising $60,000 a year of spending in twenty-five years is quoting future dollars, and future dollars are smaller. Run $60,000 backward 25 years at 2.5% and it is $32,363.44 — that is the standard of living the promise actually buys. Turn it around and today's $60,000 lifestyle needs $111,236.65 a year by then to stay level.
Whichever direction you prefer, say the inflation assumption out loud. A retirement target quoted without one is missing half its meaning, and the gap between $60,000 and $111,236.65 is made entirely of that missing half.
Take the inflated spending figure into a full projection with the Retirement Calculator.
Which Inflation Rate Should You Enter?
This single input decides the answer, and there is no universally correct value. Three defensible ways to choose one.
Start from the central bank's target
For long horizons, 2% is the defensible default in the US and the UK alike. The FOMC judges 2 percent over the longer run, measured on the PCE price index, to be most consistent with its mandate for maximum employment and price stability; the UK government sets the Bank of England a 2% CPI target for the same reason — stable, predictable prices let households and firms plan.
It is a target, not a promise. Actual inflation runs above and below it for years at a stretch, which is precisely why the next two approaches exist.
Run a spread, not a single number
A better habit than hunting for the one right rate is entering three and reading the gap. On $100,000 over thirty years this calculator returns $181,136.16 at 2%, $242,726.25 at 3% and $432,194.24 at 5% — the 5% answer is more than double the 2% one, from an assumption most people pick in a second and never revisit.
A plan that still works in the 5% column can afford to be wrong about inflation. A plan that only works at 2% is a bet on monetary policy going well, and it is much better to know that before committing than afterwards.
Your basket is not the national basket
The headline rate weights the average household's spending. If most of your money goes on rent, childcare, insurance and medical care — categories with their own trajectories — your personal inflation rate can sit well above the published one for years at a time. Retirees skew heavily toward health care; young renters skew toward housing; neither matches the average that gets reported.
The most grounded rate you can enter is one you worked out yourself, from two prices you genuinely remember, using the annualized formula higher up this page. It covers only your own basket, which is the entire point of it.
Limits: When This Calculation Does Not Apply
Every simplification in this tool is listed here. Knowing where a model stops is what makes the rest of it safe to use.
A constant rate is a simplification
Real inflation is lumpy — a quiet decade, a violent couple of years, a slow return to normal. Applying one average rate across the whole span gets the endpoints roughly right and the path badly wrong, and it will not reproduce the figure that a year-by-year chain of published index readings produces.
If you need accuracy for a contract, an insurance claim, a tax position or a court filing, a compounded average is not a substitute for the official index reading for each individual year involved.
It does not look up CPI for you
There is no historical database behind this page and no year selector — you supply the rate, the calculator supplies the compounding. That is a deliberate trade. An assumption you control beats a stale figure baked into a page nobody updates, and it means the tool works for any currency, country or period, including ones no published index covers.
For an exact conversion between two named years, take your national statistics office's index readings for those years and use the ratio formula above; the arithmetic is identical and the inputs are official.
Many prices ignore the general rate entirely
House prices, college tuition, medical care and the assets in an investment portfolio move on their own schedules, sometimes for decades at a time. Running a $120,000 house from thirty years ago forward at 2.6% gives $259,180.35, and that number answers exactly one question: what general inflation alone would have done to the price.
Everything between that figure and the real selling price is the housing market — supply, mortgage rates, location, taste. Attributing the difference to inflation is the single most common misuse of a calculation like this one.
What the fields will and will not accept
The practical boundaries, all checked against the calculator itself:
- A rate of 0 returns the amount unchanged — a useful check that the direction is set the way you think it is.
- A negative rate is accepted and models deflation: −2% over 10 years turns $1,000 into $817.07 in Future Value mode.
- Years accepts decimals, so 10.5 years on $1,000 at 3% returns $1,363.93.
- All three number fields have to be filled in; nothing defaults, and nothing is calculated until you submit.
- One currency at a time — there is no exchange-rate step, so never mix a 1995 pound with a 2025 dollar in the same run.
Tax sits outside the model as well. A return that beats inflation before tax may not beat it afterwards, and that comparison has to be made on the after-tax figure rather than this one.