Inflation Calculator

Understanding the Inflation Calculator

Inflation is the persistent increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money. This calculator helps you visualize this effect over time.

How It Works

The tool uses a standard formula to calculate the future value of a current amount of money, or the past value of a current amount, based on a given inflation rate.

• Initial Amount: The amount of money you want to analyze.
• Number of Years: The time period over which to calculate the effect of inflation.
• Average Annual Inflation Rate: The rate at which you expect prices to increase each year. A common historical average is around 3%.

The Formula for Future Value

To calculate the future value, the calculator uses the following formula:

Future Value = Initial Amount * (1 + Inflation Rate / 100) ^ Years

The result shows you how much money you would need in the future to have the same purchasing power as your initial amount today. The difference between the future value and the initial amount represents the "Lost Purchasing Power," highlighting the importance of investing your money so that its growth can outpace inflation.

Frequently Asked Questions