What this inflation calculator shows
Inflation is the general rise in prices over time. When prices go up, each dollar buys less. This calculator works both directions from a single average inflation rate:
- Future cost: what something that costs a given amount today will cost after a number of years: amount × (1 + rate)years.
- Purchasing power: what that same amount of cash will be able to buy in today's terms: amount ÷ (1 + rate)years.
At 3% a year, $100 of groceries today costs about $134.39 in 10 years, and $100 kept in cash will only buy about $74.41 of today's goods.
What inflation rate should I use?
In the US, inflation is usually measured by the Consumer Price Index (CPI) published monthly by the Bureau of Labor Statistics. Over the long run, US consumer prices have risen by roughly 3% a year on average, while the Federal Reserve targets 2% a year (measured with a related index). Individual years can be much higher or lower. For long-term planning, 2.5% to 3% is a common assumption; to look at the past, use the actual CPI figures from BLS.gov, which you can turn into an average rate for the period.
Different expenses inflate at different speeds. Healthcare, college tuition and housing have often risen faster than overall CPI, while many electronics have become cheaper. If you are planning for one specific cost, use a rate that fits it.
Why inflation matters for your money
Inflation is the reason cash sitting in a checking account slowly loses value. To keep up, savings need to earn at least the inflation rate after taxes. That is why long-term goals such as retirement are usually invested, and why a savings or retirement projection should be checked in today's dollars. Subtracting inflation from a nominal return gives an approximate real return: a 7% return with 3% inflation grows purchasing power by about 4% a year.
Inflation and debt
Inflation works in favor of borrowers with fixed-rate debt: a fixed mortgage payment stays the same while wages and prices rise, so it takes up a smaller share of income over time. Variable-rate debt, such as credit cards, tends to get more expensive when inflation pushes interest rates up.
Frequently asked questions
How much will $100 be worth in 10 years?
At 3% inflation, $100 in cash will buy what about $74.41 buys today, and something that costs $100 now will cost about $134.39.
What is the average US inflation rate?
Over the long term, US consumer prices have risen by about 3% a year on average, with large swings in individual years. The Federal Reserve aims for 2% a year.
How do I calculate inflation between two years?
Divide the CPI for the later year by the CPI for the earlier year and multiply by the original amount. BLS.gov publishes the CPI for every month.
How do I protect savings from inflation?
Keep only short-term money in cash, use high-yield savings or Treasury inflation-protected securities for safe money, and invest long-term savings in assets expected to outpace inflation.