How Inflation Impacts Your Money
Inflation is the rate at which the general level of prices for goods and services is rising. As inflation rises, every unit of currency buys a smaller percentage of a good or service. This means your purchasing power decreases over time.
Key Inflation Terms (Definitions)
If you want to interpret the calculator output correctly, these are the most important inflation-related concepts (and the keywords people usually search for).
Inflation rate
The average annual percentage increase in prices. In this calculator, it’s treated as a constant rate compounded each year.
Purchasing power
How much real goods/services your money can buy. Inflation reduces purchasing power over time even if the number of dollars stays the same.
Nominal vs real value
Nominal is the “sticker price” in dollars. Real value is inflation-adjusted (what those dollars are worth in today’s buying power).
CPI (Consumer Price Index)
A common measure of inflation based on a basket of consumer goods/services. It’s an average—your personal inflation can differ.
Disinflation vs deflation
Disinflation = inflation is still positive but slowing. Deflation = prices falling on average (negative inflation).
Compounding (CAGR-style)
Inflation compounds: 3% for 10 years is not 30%—it’s ( (1.03)^{10} - 1 ) ≈ 34.4%.
Want a more tailored estimate? Try our personal inflation calculator to weigh categories like housing, food, and energy.
Scenario A: Your Cash Savings
If you keep $1,000 under your mattress for 10 years with 5% annual inflation, that money will only be able to buy about $600 worth of goods in today's terms. You haven't "lost" money, but you've lost value.
Scenario B: Future Costs
If a car costs $30,000 today, and inflation runs at 3% per year, in 5 years that same car will likely cost around $34,778. You need to earn more just to stay in the same place.
Inflation Impact Examples (2026)
The following table demonstrates how inflation erodes purchasing power over time. These examples show how much money you would need in the future to maintain the same purchasing power, and how much your current savings will be worth in real terms.
| Current Value | Inflation Rate | Years | Future Value Needed | Real Purchasing Power | Value Lost |
|---|---|---|---|---|---|
| $10,000 | 2.5% | 5 | $11,314 | $8,840 | $1,160 |
| $10,000 | 3.0% | 10 | $13,439 | $7,441 | $2,559 |
| $50,000 | 2.5% | 20 | $81,930 | $30,515 | $19,485 |
| $100,000 | 3.0% | 15 | $155,797 | $64,186 | $35,814 |
| $500,000 | 2.5% | 30 | $1,048,808 | $476,743 | $23,257 |
| $1,000,000 | 4.0% | 25 | $2,665,836 | $375,117 | $624,883 |
"Future Value Needed" shows how much money you would need to maintain the same purchasing power. "Real Purchasing Power" shows what your current savings will actually be worth in the future. "Value Lost" represents the purchasing power erosion due to inflation.
Methodology: How We Calculate It
This calculator uses the standard Compound Interest formula to project future values. It assumes that the inflation rate remains constant over the selected period (Compound Annual Growth Rate).
- Future Cost Formula:
FV = PV * (1 + r)^n - Purchasing Power Formula:
PV = FV / (1 + r)^n
Where r is the annual inflation rate and n is the number of years. When planning retirement savings, use our retirement calculator to see how inflation impacts your long-term financial goals.