What inflation does to money
Inflation is the steady rise of prices — and the mirror image, the steady fall of what a dollar buys. It compounds exactly like interest, which is why small annual rates have large long-run effects: at 3%, prices double in about 24 years; at 7%, in about 10. This calculator shows both directions: what today's expenses will cost in the future, and what a future sum is worth in today's purchasing power.
The inflation formulas
The same compounding engine as the Compound Interest Calculator, run on prices instead of balances. Economists call the second formula deflating a future amount — it is how "in today's dollars" figures in retirement and pension planning are produced.
Why inflation belongs in every plan
- Savings: a "safe" account earning 1% during 3% inflation is safely losing 2% a year of purchasing power.
- Retirement: $40,000 of yearly spending today becomes roughly $72,600 in 20 years at 3% inflation — plan the future number, not the current one.
- Debt: inflation quietly helps fixed-rate borrowers, who repay in cheaper dollars — one reason long fixed mortgages are valuable in inflationary times.
- Wages: a 2% raise during 4% inflation is a pay cut in real terms; negotiate in real numbers.
Which rate should you use?
US CPI inflation has averaged roughly 3% over very long horizons, about 2.5% in the decades before 2021, and spiked above 8% in 2022. A single rate is a planning simplification — your personal inflation depends on your basket (housing, tuition and healthcare have often risen faster than the headline index).
Worked example
At 3% inflation, something that costs $1,000 today will cost $1,000 × 1.0310 = $1,343.92 in 10 years. Flip it around: $1,000 received in 10 years will buy only what $744.09 buys today. Cash held for that decade loses 25.6% of its purchasing power without a single dollar being spent.
How to use this calculator
- Enter an amount in today's money — a monthly budget, a salary, a goal.
- Enter an expected average inflation rate (3% is the long-run US norm).
- Enter the number of years.
- Read the future cost, and the 'purchasing power lost' line if you are evaluating idle cash.
- For retirement planning, re-run your savings goal through this lens to set a target in future dollars.
The real rate of return
Investors subtract inflation from returns to get the real return: 7% growth during 3% inflation is roughly 4% of real progress. Use real returns in the Retirement Calculator (enter 4% instead of 7%) and the whole projection is automatically stated in today's purchasing power — the most honest way to plan.