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Inflation Calculator

Calculate the erosion of your purchasing power and project future costs under inflation.

Calculator Variables

Calculation Overview

See how inflation erodes the value of cash over time. Calculate future costs and purchasing power loss.

Mathematical Model & Formula

Real Value = Cash / (1 + r)^t

Compunds price growth to project future costs, and discounts current cash balances to isolate how much purchasing power is lost to inflation.

Variables Defined:

Cash: Starting cash amount
r: Annual inflation rate (decimal)
t: Time horizon in years

Worked Example Scenario

Scenario: You hold $10,000 in cash for 10 years at a 3% average inflation rate.

Cash = $10,000, r = 0.03, t = 10
Evaluate formula: $10,000 / (1.03)^10
Inflation factor: 1.03^10 ≈ 1.3439
Discount cash: $10,000 / 1.3439 ≈ $7,440.94

Result: Your cash will buy what $7,441 buys today, losing $2,559 in value.

Frequently Asked Questions

How is inflation calculated?

Governments calculate inflation using indexes like the Consumer Price Index (CPI), which tracks the average price change of a basket of goods and services over time.

Academic & Regulatory References

Bureau of Labor Statistics (BLS) Consumer Price Index → The official agency tracking inflation metrics.