The concept
Inflation and purchasing power
Inflation describes a broad change in prices over time. If prices rise, the same nominal amount generally purchases less.
A single assumed rate is a simplification. Actual price changes vary by period, location and category.
The method
How the calculation works
The amount today is compounded annually by the entered inflation rate. An inverse calculation estimates the future purchasing power of the original nominal amount.
PV is the amount today, i is the assumed annual inflation rate and t is time in years.
Worked example
A neutral example
At an assumed 3% annual inflation rate, an item costing $1,000 today has a calculated equivalent cost of about $1,344 after 10 years.
This example explains the method. It does not recommend a financial action or predict an outcome.
Frequently asked
Inflation Calculator questions
Is the entered inflation rate a forecast?+
No. It is solely an assumption.
Can I enter a negative rate?+
Yes. A negative assumption represents falling prices in this simplified model.
Do all prices change at the same rate?+
No. Individual goods, services and locations can behave differently.