What inflation does to money
Inflation is the general rise in prices over time. When prices rise, each unit of money buys a little less, so inflation can be seen in two ways: things cost more, or your money is worth less. This calculator shows both, using a constant average yearly rate.
The formulas
Future cost = today's cost × (1 + r)n
Purchasing power of cash = amount ÷ (1 + r)n
Average inflation rate = (later price ÷ earlier price)1/n − 1
Here r is the yearly inflation rate as a decimal (3% = 0.03) and n is the number of years. Inflation compounds just like interest: each year's rise is applied to prices that have already risen.
Worked examples
1. What will 100 cost in 10 years at 3%?
100 × 1.0310 = 100 × 1.3439 = 134.39. Prices rise by 34.4% in total, more than the 30% you would get by simply adding 3% ten times, because of compounding.
2. What is 100 in cash worth after 10 years at 3%?
100 ÷ 1.0310 = 74.41 in today's money. Cash under the mattress loses about a quarter of its purchasing power in a decade at 3% inflation.
3. A salary or budget over 20 years
A yearly budget of 50,000 needs to grow to 81,930.82 after 20 years of 2.5% inflation just to buy the same things. Seen the other way, 50,000 then is worth only 30,513.55 in today's money. This is why long-term plans, such as the retirement calculator, should allow for inflation.
4. Finding the rate from two prices
A coffee cost 2.50 eight years ago and 3.20 today. (3.20 ÷ 2.50)1/8 − 1 = 1.280.125 − 1 = 3.13% a year. Choose "Average inflation rate between two prices" in the calculator to do this for any item, rent or wage.
Quick table: what 100 becomes
| Inflation | After 5 years | After 10 years | After 20 years | Years for prices to double |
|---|---|---|---|---|
| 2% | 110.41 | 121.90 | 148.59 | 35.0 |
| 3% | 115.93 | 134.39 | 180.61 | 23.4 |
| 5% | 127.63 | 162.89 | 265.33 | 14.2 |
| 8% | 146.93 | 215.89 | 466.10 | 9.0 |
The Rule of 72 gives a quick estimate of the doubling time: divide 72 by the inflation rate. At 3%, 72 ÷ 3 = 24 years, close to the exact 23.4.
Real returns: beating inflation
Savings and investments only grow your purchasing power if they earn more than inflation. The real return is:
Real return = (1 + nominal return) ÷ (1 + inflation) − 1
An account paying 5% while inflation is 3% gives a real return of 1.05 ÷ 1.03 − 1 = 1.94%, slightly less than the simple 5 − 3 = 2%. If inflation is higher than your interest rate, the real return is negative even though the balance grows. Compare growth in the compound interest calculator with the inflation figures here.
What rate should I use?
- Central bank targets. Many central banks aim for about 2% a year over the medium term, including the US Federal Reserve, the European Central Bank and the Bank of England. That makes 2–3% a common assumption for long-term planning.
- Your country's official figures. National statistics offices publish a consumer price index (CPI). Using the average of the past 10–20 years gives a more realistic local figure, especially in countries with higher inflation.
- Your own costs. Rent, school fees, health care and energy can rise faster or slower than the average. Use the two-price mode to measure your own items.
Limitations
- Real inflation changes from year to year. A constant rate is a planning assumption, not a forecast.
- The CPI measures an average basket of goods; your personal inflation rate may differ.
- Results are in the same currency. Exchange rate changes are a separate effect.
- Deflation (negative inflation) can be entered as a negative rate, down to −50%.
Common mistakes
- Adding instead of compounding: 10 years at 3% is a 34.4% rise, not 30%.
- Subtracting rates for real returns at high inflation, where the approximation becomes poor.
- Using one year's spike as a long-term assumption. Average over several years.
- Forgetting inflation in savings goals. A target of 20,000 in 10 years needs to be about 26,900 to buy what 20,000 buys today at 3%.
Frequently asked questions
How do I calculate inflation over several years?
Multiply the price by (1 + rate) once for each year, or use price × (1 + r)^n. At 3% for 10 years, 100 becomes 100 × 1.03^10 = 134.39.
How much is money worth after inflation?
Divide by (1 + r)^n. After 10 years at 3%, 100 has the purchasing power of 100 ÷ 1.3439 = 74.41 today.
How do I find the average inflation rate between two prices?
Divide the later price by the earlier one, take the n-th root for n years, and subtract 1. From 2.50 to 3.20 over 8 years: 1.28^(1/8) − 1 = 3.13% a year.
What inflation rate should I assume?
Many central banks target about 2% a year, so 2–3% is a common long-term assumption. In countries with higher historical inflation, use the average of your national CPI over the last 10–20 years.
What is a real return?
Your return after inflation: (1 + nominal) ÷ (1 + inflation) − 1. Earning 5% with 3% inflation gives a real return of about 1.94%.
Sources
- US Federal Reserve, Statement on Longer-Run Goals and Monetary Policy Strategy (2% inflation objective).
- European Central Bank, monetary policy strategy statement (2021): 2% inflation target over the medium term.
- Bank of England, monetary policy remit: 2% CPI inflation target.
- US Bureau of Labor Statistics, Consumer Price Index: concepts and methods.
Last reviewed 15 October 2026. Results are estimates; see our disclaimer.