Inflation calculator

What it's for

With inflation prices rise and idle money loses value. This tool shows how much you'd need today to have the same purchasing power as back then.

Note

It uses the average inflation you enter: for long periods try different values (the historical average is around 2-3% a year).

Why inflation behaves like compound interest

Three per cent a year for ten years is not 30%: it is 34%, because each year the percentage applies to prices that already rose the year before. It is the same mechanism that grows an investment, turned the other way round: here what grows is prices and what shrinks is the value of idle money.

Over long periods the difference becomes enormous. With average inflation of 3%, prices double in a little under 24 years, and the shortcut for working it out in your head is the rule of 72: seventy-two divided by the inflation rate gives the years to doubling.

The average rate is not each year's rate

This page works with a constant percentage, which is the right way to answer «what would it be worth today», but reality is uneven: there are quiet decades and years when prices run. Anyone comparing two distant eras should therefore try several values and read the result as a band, not as a number.

And there is a trap in the word itself: the official index measures an average basket, and nobody buys the average basket. People who spend a lot on rent, heating or food have experienced in recent years a personal inflation well above the published one, and they were not mistaken.

What it means for idle money

A current account paying nothing is not neutral: it loses the inflation rate every year. Ten thousand left idle for ten years with 3% inflation buys what today would cost about seven thousand four hundred. The balance on the statement is identical, the purchasing power is not, and that is why the loss is invisible.

The reverse holds for fixed-rate debt, which inflation lightens: the instalment stays the same while wages and prices rise. It is one of the few things that works in favour of someone with a mortgage.

Comparing wages and prices across eras

This is the most interesting use of the page, and also the one where mistakes are commonest. A wage from thirty years ago can only be compared with today's after bringing both to the same year; and a house that cost far less in absolute terms could, against the prices of the time, cost a great many years of salary.

The honest comparison is therefore always made on three numbers and not two: the figure from then, the figure from now, and the inflation that separates them.

Nearby tools

For the growth of capital over time there is Compound interest, and for a long-term target Savings goal. Anyone wanting to know what an investment really returns will find the gross figure in ROI calculator, and in FIRE number the capital needed to cover spending.