Inflation Calculator
Calculate how inflation erodes purchasing power over time, or find what a historical amount equals in today's dollars.
Inflation is the most reliable force in finance that most people systematically underestimate over long time horizons. At 3% annual inflation, prices double in 24 years. A salary that feels generous today buys significantly less in 20 years if it does not keep pace. A retirement portfolio that looks large enough today may be inadequate in 30 years for the same standard of living.
At 3% annual inflation, purchasing power halves in 24 years. At the Fed's 2% target, it halves in 36 years. Long-term financial planning that ignores inflation systematically overestimates future purchasing power.
The rule of 70 for inflation
Divide 70 by the inflation rate to find how many years it takes for prices to double (equivalently, for purchasing power to halve). At 3%: 70/3 = 23.3 years. At 2%: 35 years. At 7% (high inflation period): 10 years. This rule gives an intuitive sense of inflation's compounding effect over long periods.
Real vs nominal returns
A 10% nominal investment return during a 3% inflation period produces a real return of approximately 6.8% (using the Fisher equation: real return = (1 + nominal) / (1 + inflation) - 1). Comparing investment returns without adjusting for inflation overstates actual gains in purchasing power. For retirement planning, always model using real (after-inflation) returns.
Historical US inflation rates
The long-run average US CPI inflation rate is approximately 3.1% since 1913. The Fed's current 2% target represents a low-inflation aspiration. The 1970s saw rates above 10%. The 2021-2022 period saw rates reach 9% temporarily. Planning with 2.5-3% is a reasonable long-term assumption; using 2% is slightly optimistic by historical standards.
Frequently asked questions
How does inflation affect savings accounts?
If your savings account earns less than the inflation rate, you are losing purchasing power in real terms even while the nominal balance grows. A 4.5% HYSA during 3% inflation produces a 1.5% real return. Cash held in a 0% checking account loses purchasing power at the full inflation rate every year.
Which assets protect against inflation?
Stocks have historically provided returns well above inflation over long periods. Real estate tends to appreciate with or above inflation. TIPS (Treasury Inflation-Protected Securities) adjust their principal with CPI. Commodities and gold have mixed long-term inflation-protection records. Cash and fixed-rate bonds provide the least protection during inflationary periods.