What Is Inflation?
Inflation is the general rise in prices over time — each unit of currency buys fewer goods and services. Central banks often target low, stable inflation (e.g. ~2% annually in many developed economies).
Deflation (falling prices) sounds good but can hurt spending and wages — policymakers usually avoid it.
Purchasing Power
Real value adjusts for inflation; nominal does not.
If inflation averages 3% for 24 years, prices roughly double (rule of 72: 72/3 = 24). A $1,000,000 portfolio in nominal terms buys half as much in today's dollars if prices doubled.
Future value in today's dollars ≈ Nominal / (1 + inflation)^years
CPI and Other Measures
The Consumer Price Index (CPI) tracks a basket of goods — your personal inflation may differ (healthcare vs electronics).
| Measure | Notes |
|---|---|
| Headline CPI | Includes food and energy |
| Core CPI | Excludes volatile items — smoother |
Use CPI for rough cost-of-living adjustments in contracts or retirement planning.
Inflation and Investments
If your investment returns 7% but inflation is 3%, your real return is roughly 4% (approximate).
Cash earning 0% with 3% inflation loses ~3% real purchasing power per year — silent wealth destruction.
Stocks and real assets have historically outpaced inflation over long periods — with volatility.
How to Use This Inflation Calculator
Enter present amount, inflation rate, and years. See future nominal cost or equivalent purchasing power. Use it to stress-test retirement needs, college costs, and salary expectations — not as a precise forecast (inflation varies yearly).