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Inflation Calculator

See how inflation erodes your purchasing power over time and learn how investing can help offset it. See how inflation erodes your purchasing power over time and compare against investment returns.

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Understanding Inflation and Your Money

Inflation is the gradual increase in the prices of goods and services over time. While a moderate level of inflation is normal in a healthy economy, it means that the same amount of money buys fewer goods and services in the future. Understanding inflation is essential for making smart financial decisions and protecting your wealth.

How Inflation Erodes Purchasing Power

At a 3% annual inflation rate — close to the long-term U.S. average — your money loses about half its purchasing power every 24 years. This means $100,000 today would only buy about $50,000 worth of goods and services in 2050. Cash sitting in a checking account is essentially shrinking in real terms.

The Importance of Real Returns

When evaluating an investment, always consider the real return (nominal return minus inflation). A savings account earning 4.5% sounds good, but if inflation is 3%, your real return is only 1.5%. The S&P 500's historical nominal return of about 10% translates to roughly 7% in real terms.

Strategies to Beat Inflation

  • Invest in equities: Stocks have historically outpaced inflation over the long term, delivering positive real returns.
  • Consider TIPS: Treasury Inflation-Protected Securities are government bonds that adjust their principal based on the CPI.
  • Real estate: Property values and rental income tend to rise with inflation, providing a natural hedge.
  • I-Bonds: Series I Savings Bonds offer a fixed rate plus an inflation adjustment, making them a low-risk inflation hedge.

How to Use This Calculator

Enter the dollar amount you want to analyze, an assumed inflation rate (the historical U.S. average is roughly 3%), and the time period. You can also add an investment return rate to compare how investing could offset inflation's impact. The calculator shows your future purchasing power, the dollar amount of purchasing power lost, and a year-by-year breakdown.