Inflation Calculator

Calculate how inflation affects purchasing power and the future value of money.

Future Value = Amount x (1 + Inflation Rate)^Years; Purchasing Power = Amount / (1 + Rate)^Years
$1,000 with 3% inflation over 10 years: Future value = $1,344 (need $1,344 to equal today's $1,000), Current purchasing power of future $1,000 = $744

What is a normal inflation rate?

Federal Reserve targets 2% annual inflation as healthy for economy. Historical US average (1913-2024): ~3.2%. Recent rates: 2010s averaged 1.8%, 2021-2023 spiked to 5-8%, 2024 returned to ~3-4%. High inflation (5%+) erodes purchasing power quickly. Deflation (negative inflation) indicates economic problems. Moderate 2-3% inflation is considered optimal.

How does inflation affect my savings?

Inflation erodes purchasing power of cash. At 3% inflation, $10,000 loses $300 buying power per year. After 10 years at 3% inflation, you need $13,439 to buy what $10,000 bought originally. This is why investing is crucial - savings accounts earning 4-5% barely beat inflation. Stocks historically return 7-10%, beating inflation by 4-7% annually.

What causes inflation?

Main causes: Demand-pull (too much money chasing too few goods), cost-push (rising production costs), monetary supply (printing money), supply chain disruptions, wage increases, energy prices. COVID-19 pandemic caused inflation through supply shortages, stimulus spending, and labor shortages. Central banks combat inflation by raising interest rates to slow spending.

How can I protect my money from inflation?

Strategies: Invest in stocks/index funds (historically beat inflation), real estate (appreciates with inflation), I Bonds/TIPS (inflation-protected government bonds), commodities (gold, oil), increase income through raises/side hustles. DON'T keep large emergency fund beyond 6 months - invest excess. Debt with fixed rates becomes cheaper with inflation (payment stays same, but dollar weakens).