Bureau of Wealth

Inflation Calculator: Future Cost and Buying Power

By the Bureau of Wealth team Updated

This calculator is general information, not financial advice. Check your own figures with the provider or a qualified adviser before acting on them.

Choose whether you want a future price or the future buying power of your money, then enter an amount, a yearly inflation rate and a number of years.

What do you want to know?

The Federal Reserve's longer-run inflation goal is 2%.

Check the highlighted fields to see your results.

What this calculator assumes

  • Inflation runs at the same rate you enter every year. In reality it rises and falls, sometimes sharply, so the result shows what a steady rate would do.
  • The calculator does not use historical Consumer Price Index data. It looks forward from today using your assumed rate, rather than measuring price changes that have already happened.
  • One rate applies to everything. Prices of individual items, such as health care, rent or college tuition, can rise much faster or slower than the average.
  • The effect compounds once a year. Each year's price rise is applied to the price after the previous year's rise.
  • Interest, investment returns, pay raises and taxes are not included. The result shows only the effect of rising prices on a fixed amount.

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How the calculator works

Inflation is the rate at which prices rise over time. The calculator applies your yearly rate as compound growth. For a future cost, it multiplies today's amount by one plus the rate, once for each year. For buying power, it does the reverse and divides by the same factor, which shows what a sum in the future would buy in today's money.

The chart and year-by-year figures use the same method for every year up to the one you choose, so you can see the gap growing steadily.

A worked example

At 3% a year, something that costs $1,000 today would cost $1,343.92 in 10 years. Turned the other way, $1,000 received in 10 years would buy only what $744.09 buys today, a loss of $255.91 in buying power.

Over longer periods the effect is larger than it feels. At 3% for 25 years, a $1,000 price rises to $2,093.78, more than doubling, and $1,000 then buys what $477.61 buys now. If you spend $30,000 a year today, the same lifestyle would cost $54,183.34 a year in 20 years at 3%.

Choosing a rate

The Bureau of Labor Statistics publishes the Consumer Price Index, or CPI. It measures the average change over time in the prices consumers pay for a representative basket of goods and services. BLS points out that it does not necessarily measure your own experience: if you spend more than average on something whose price is rising fast, your personal inflation rate can be higher.

The Federal Reserve has said that inflation of 2% over the longer run, measured by the annual change in the price index for personal consumption expenditures, is most consistent with its mandate. That index is not the CPI, and 2% is a goal, not a forecast. Actual inflation in any year can be higher or lower, so it is sensible to try a range, such as 2%, 3% and 4%, rather than rely on one figure.

What the result means for your plans

If your savings earn less than the inflation rate, their buying power falls even though the balance grows. For long-term goals such as retirement, work in today's money and use a return after inflation, or raise your target by the inflation figure this calculator gives. To measure how prices have actually changed in the past, use the CPI Inflation Calculator on the BLS website, which uses the official index.

Related calculators

To see whether your savings can outpace inflation, run the same period through the compound interest calculator. If you are planning to stop working early, the FIRE calculator works in today's money using a return after inflation.

Frequently asked questions

What inflation rate should I use?

Nobody knows the future rate. The Federal Reserve's 2% longer-run goal is a reasonable starting point, but test 3% or 4% as well to see how sensitive your plans are.

Can I use this to see what money was worth in the past?

Not accurately. This calculator uses a single assumed rate rather than historical data. For past price changes, the BLS CPI Inflation Calculator uses the actual Consumer Price Index.

What is the difference between future cost and buying power?

Future cost shows how much more you would need to pay for the same thing later. Buying power shows how much less a fixed sum will buy, expressed in today's dollars.

Why does my own cost of living seem to rise faster than the CPI?

The CPI is an average across many households. If a large share of your spending goes on items whose prices are rising faster than average, your personal inflation rate will be higher.

How can I protect my savings from inflation?

Compare the interest or expected return you earn with the inflation rate. Money earning less than inflation loses buying power, so for long-term goals consider options with a higher expected return and understand the extra risk they carry.

Sources

Figures come from institutions millions of people rely on. How we keep calculators accurate.