How the inflation calculator works
Inflation erodes purchasing power at a compounding rate. The future equivalent value answers: "How much money will I need in N years to buy what $X buys today?" The real value answers the reverse: "What is $X today worth in future purchasing power?"
Future equivalent = Amount × (1 + r)n
Real value = Amount ÷ (1 + r)n
r = annual inflation rate ÷ 100 · n = years
The Rule of 72 gives a quick mental check: divide 72 by the inflation rate to estimate how many years it takes for prices to double. At 3% inflation, prices double in roughly 24 years.
Why purchasing power matters
A 3% annual inflation rate looks modest, but over 20 years it reduces the buying power of $10,000 to about $5,537. That means you would need $18,061 in 20 years to match what $10,000 buys today. For retirement planning, salary negotiations, or any long-horizon goal, inflation is a critical input.
Frequently asked questions
What is purchasing power?
Purchasing power is how much a fixed amount of money can actually buy. When inflation rises, a dollar buys less over time, so your purchasing power falls even if the dollar amount stays the same.
What inflation rate should I use?
The US long-run average is about 3% per year. Recent years have seen rates between 3% and 9%. Use the official CPI figure for a given period, or a personal estimate based on your own spending mix.
How does inflation affect savings?
If your savings earn less interest than the inflation rate, your real purchasing power shrinks each year even though the number on your bank statement grows. This is why earning a return above inflation matters for long-term wealth.
What is the Rule of 72 for inflation?
Divide 72 by the inflation rate to estimate how many years it takes for prices to double. At 3% inflation, prices double roughly every 24 years. At 7%, they double in about 10 years.
How do I protect against inflation?
Common strategies include holding inflation-linked bonds (such as TIPS), investing in real assets (real estate, stocks), and maintaining an emergency fund in high-yield savings that at least partially offsets inflation. No single strategy eliminates the risk entirely.
Estimates only, not financial advice. Consult a qualified professional before making investment or savings decisions.