Inflation Calculator
Calculate how inflation erodes purchasing power over time.
See the future value of money and what your dollars will really be worth.
Inflation is the rate at which the general level of prices rises over time, eroding the purchasing power of money. Understanding inflation is essential for savings, retirement planning, salary negotiation, and long-term financial decisions.
Inflation formula — future value of today’s money: Future price = Present price × (1 + inflation rate)ⁿ
Purchasing power formula — what today’s money will be worth: Future purchasing power = Current amount / (1 + inflation rate)ⁿ
Worked examples:
Example 1 — Cost of living in 20 years: Current annual expenses: £30,000 Average inflation: 3% per year In 20 years: £30,000 × 1.03²⁰ = £30,000 × 1.806 = £54,183
Example 2 — Real return on savings: Savings account paying 4% annual interest, inflation at 3%: Real return = ((1 + 0.04) / (1 + 0.03)) − 1 = 0.97% real return You are only growing your purchasing power by 0.97% per year.
Example 3 — Salary keeping pace: Salary: £35,000, inflation 4% this year. Required pay rise to maintain purchasing power: £35,000 × 1.04 = £36,400
Rule of 70: Divide 70 by the annual inflation rate to estimate how many years it takes for prices to double. At 3.5% inflation: 70/3.5 = 20 years for prices to double. At 7% inflation: 70/7 = 10 years.
Historical UK inflation: Average 1990–2024: approximately 2.5–3% per year. Peak: 11.1% in October 2022 (post-pandemic energy crisis).
Protecting against inflation:
- Index-linked savings (ISAs, NS&I bonds)
- Property (historically tracks inflation long-term)
- Equities (stock returns historically outpace inflation)
- TIPS / index-linked gilts (government bonds that adjust with CPI)