$1,000 today won't buy what $1,000 bought ten years ago — and it won't buy what $1,000 buys today, ten years from now. That's inflation: prices rise, and the same amount of money buys a little less each year. Here's how to actually calculate what that means for you.

What Inflation Actually Does

Inflation is the rate at which prices rise across the economy over time. It doesn't change how many dollars you have — it changes how much those dollars can buy. A dollar that buys a loaf of bread today might not buy a full loaf in ten years if bread prices rise faster than your dollar count does.

Three Ways to Think About Inflation

  • Future erosion: what will today's amount be worth, in today's purchasing power, N years from now?
  • Past value: what would an amount from N years ago be worth in today's money?
  • Income adjustment: how much does an income need to grow just to keep pace with inflation over time?

The Compounding Nature of Inflation

Small rates add up: even a modest 3% annual inflation rate cuts the purchasing power of a fixed amount roughly in half over about 24 years, because inflation compounds the same way interest does — a little erosion every year, compounding on top of the previous year's erosion.

Why This Matters for Saving and Salary

Money sitting in an account earning less than the inflation rate is quietly losing purchasing power even while the number on the statement stays the same or grows slowly. Similarly, a salary that doesn't rise with inflation is effectively a pay cut in real terms every year, even though the paycheck number looks unchanged.

Step-by-Step: Calculate Inflation's Impact

  1. Choose whether you're projecting forward, looking backward, or adjusting an income
  2. Enter the amount, the assumed annual inflation rate, and the number of years
  3. Review the inflation-adjusted result to see the real purchasing power change

Try It Yourself

Use our free Inflation Calculator — project, look back, or adjust income

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