Free Inflation Calculator

What inflation does to money over time

Inflation is compound interest running against you. The same mechanism that grows savings erodes purchasing power, and over long periods the effect is just as dramatic — which is why a retirement projection or a long-term savings goal can be badly misleading in nominal dollars.

Two ways to look at the same erosion

The figures above describe one phenomenon from opposite directions. Prices rise 80.6%, and the value of a dollar falls 44.6%. Both are correct, and the asymmetry confuses people — a doubling of prices means money buys half as much, not 100% less.

Which framing to use depends on the question. Planning a future purchase, the cost figure matters. Deciding whether cash savings will hold up, the purchasing-power figure matters.

How much the rate assumption changes things

Small differences compound into large ones. Over the same 20 years, $1,000 becomes about $1,485.95 at 2% inflation and about $2,653.30 at 5% — nearly double the outcome for a three-point difference in rate.

Because nobody knows future inflation, running two or three rates is more informative than trusting one. A commonly used long-run planning figure for the U.S. is around 2–3%, but actual inflation has spent periods well outside that range in both directions.

Why cash quietly loses

Money earning less than the inflation rate loses purchasing power even though the balance never falls. A savings account paying 1% during 3% inflation loses roughly 2% a year in real terms — the number on the statement rises while what it buys shrinks.

This is the practical argument for keeping long-horizon money somewhere with a return that at least keeps pace, and for not holding far more cash than an emergency fund requires. It's also the argument against the opposite mistake: money needed within a year or two belongs somewhere safe regardless, because a market drop at the wrong moment costs more than inflation does over that span.

Real versus nominal returns

A nominal return is what an account reports. A real return subtracts inflation and reflects actual gain in purchasing power. A 7% investment return during 3% inflation is roughly a 4% real return.

Most projections — including the other calculators on this site — produce nominal figures. That's standard, but it means a projected balance decades out should be mentally discounted. A $1 million retirement balance in 30 years at 3% inflation has the purchasing power of roughly $412,000 today.

Why your inflation isn't the headline number

Published inflation figures track a broad basket of goods and services. Your personal rate depends on what you actually buy. Housing, healthcare, and education have often risen faster than the general index, while electronics and some goods have risen slowly or fallen.

Someone paying rising rent and medical premiums experiences higher inflation than the headline suggests; someone with a fixed mortgage payment experiences less. If you're planning around a specific future cost — college, a medical expense — the relevant rate is that category's, not the general one.

What this calculator doesn't include

It applies a single constant rate compounded annually, which is a simplification of something that varies year to year and by category. It doesn't use historical data for past periods, model deflation scenarios, or account for how wages, Social Security cost-of-living adjustments, or tax brackets may adjust alongside prices.

Treat it as a way to understand the scale of the effect rather than a forecast — the most valuable thing it shows is how much a plausible-looking rate compounds over a long horizon.