Inflation Calculator

Calculate the impact of inflation on purchasing power, future costs, and investment returns over time.

The present value or cost of the item/service
Historical US average: ~3.2% annually
Number of years for inflation impact
How often inflation compounds
Compare salary growth vs inflation impact

Inflation Information

Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power over time.

Key Inflation Concepts:

  • Purchasing Power: The amount of goods and services that can be bought with a unit of currency
  • Real vs Nominal: Real values are adjusted for inflation, nominal values are not
  • Compound Effect: Inflation compounds over time, making its long-term impact significant
  • Cost of Living: The amount needed to maintain a standard of living

Types of Inflation:

  • Demand-Pull: Caused by increased demand for goods and services
  • Cost-Push: Caused by increased costs of production
  • Built-in: Expected inflation that becomes self-fulfilling
  • Hyperinflation: Extremely high and accelerating inflation rates

Historical Inflation Rates:

  • US Average (1913-2023): ~3.2% annually
  • Low Inflation Period (2010-2020): ~1.8% annually
  • High Inflation Period (1970s-1980s): 7-13% annually
  • Great Depression (1930s): Deflation of -6.4% to -10.3%

Protecting Against Inflation:

  • Real Assets: Invest in stocks, real estate, commodities
  • TIPS: Treasury Inflation-Protected Securities
  • Variable Rate Debt: Interest rates that adjust with inflation
  • Foreign Currency: Diversify currency exposure
  • Skills Investment: Improve earning potential

Impact on Different Groups:

  • Fixed Income Earners: Hurt by inflation (retirees, pensioners)
  • Debtors: Benefit from inflation (easier to repay with cheaper dollars)
  • Creditors: Hurt by inflation (repaid with less valuable money)
  • Asset Owners: May benefit if asset values rise with inflation

Planning for Inflation:

  • Factor inflation into long-term financial planning
  • Ensure salary increases keep pace with inflation
  • Consider inflation when setting retirement savings goals
  • Review and adjust investment portfolios regularly
  • Understand the real return on investments after inflation

Common Inflation Misconceptions:

  • Inflation affects all goods and services equally (it doesn't)
  • Low inflation is always good (some inflation indicates healthy growth)
  • Wages automatically adjust for inflation (they often lag behind)
  • Inflation only affects future purchases (it affects all economic decisions)