Calculate what a purchase will cost after inflation, what your money will still buy, and your real return after inflation.
By AdminDrafted with AI writing toolsUpdated Checked examples: 4
At 3% inflation, what costs $1,000.00 today costs $1,343.92 in 10 years, and $1,000.00 kept as cash buys only $744.09 worth of today's goods. Earning 6% beats inflation: the real return is 2.913% a year.
| Year | Cost of the purchase | Buying power of the amount | Savings (nominal) | Savings (today's money) |
|---|---|---|---|---|
| 1 | $1,030.00 | $970.87 | $1,060.00 | $1,029.13 |
| 2 | $1,060.90 | $942.60 | $1,123.60 | $1,059.10 |
| 3 | $1,092.73 | $915.14 | $1,191.02 | $1,089.95 |
| 4 | $1,125.51 | $888.49 | $1,262.48 | $1,121.69 |
| 5 | $1,159.27 | $862.61 | $1,338.23 | $1,154.37 |
| 6 | $1,194.05 | $837.48 | $1,418.52 | $1,187.99 |
| 7 | $1,229.87 | $813.09 | $1,503.63 | $1,222.59 |
| 8 | $1,266.77 | $789.41 | $1,593.85 | $1,258.20 |
| 9 | $1,304.77 | $766.42 | $1,689.48 | $1,294.84 |
| 10 | $1,343.92 | $744.09 | $1,790.85 | $1,332.56 |
The exact Fisher relation; the shortcut nominal − inflation overstates the real rate slightly.
Inflation raises prices by a percentage each year, and it compounds like interest. At a steady rate π, a purchase costing A today costs A(1 + π)^n after n years, and cash held for n years buys only A ÷ (1 + π)^n of today's goods. The real return on savings follows Irving Fisher's relation: (1 + nominal rate) ÷ (1 + inflation) − 1.
With the defaults, 1,000 and 3% inflation for 10 years, the same purchase will cost 1,343.92 and cash of 1,000 will buy 744.09 of today's goods, a 25.59% loss of purchasing power. Savings earning 6% have a real return of 2.9126% a year, not 3%, and grow to 1,332.56 in today's money.
The inflation rate is held constant. Official price indices such as the US CPI-U move unevenly and differ by basket and country, so for past prices use the index values themselves, for example through the BLS CPI inflation calculator.
Multiply a price by (1 + inflation)ⁿ for its cost after n years; divide money by the same factor for what it will buy. At 3% for 10 years, a 1,000 purchase costs 1,343.92 and 1,000 in cash buys 744.09 of today's goods, at a steady rate.
Write the rate as a decimal and raise 1 + rate to the number of years: 1.03¹⁰ = 1.343916. That one factor gives both answers:
The rise and the loss differ because the loss is 1 − 1 ÷ 1.343916: when prices are 34.39% higher, each unit of money buys about a quarter less.
Fractional years work the same way. Over 2.5 years at 3%, the factor is 1.03^2.5 = 1.076696, so the 1,000 purchase costs 1,076.70.
Each row starts from 1,000 and runs ten years.
| Annual inflation (%) | Future purchase cost | Cash purchasing power |
|---|---|---|
| 2 | 1218.99 | 820.35 |
| 3 | 1343.92 | 744.09 |
| 5 | 1628.89 | 613.91 |
Two percent is the target of the Federal Reserve, the Bank of England and the European Central Bank. Even at that rate, cash left idle for a decade loses 17.97% of its buying power.
Small differences compound: going from 3% to 5% adds 284.98 to the cost of the same purchase after ten years.
The real return is (1 + nominal return) ÷ (1 + inflation) − 1, the relation Irving Fisher set out in The Theory of Interest (1930). Savings earning 6% while prices rise 3% gain 1.06 ÷ 1.03 − 1 = 2.9126% a year in buying power.
Compounded for ten years, that real rate turns 1,000 into 1,332.56 of today's money. A nominal balance can grow and still lose ground: at a 2% return the account reaches 1,218.99, which buys only 907.05 of today's goods.
Savings that only match inflation earn a real return of zero: the money keeps its buying power and gains nothing.
A negative rate means falling prices. At −2% a year for five years, a 100 purchase drops to 90.39, and 100 of cash buys 110.63 of today's goods. The purchasing-power "loss" comes out at −10.63%, which is a gain.
A constant rate is a planning assumption. Actual inflation changes from year to year, so for past prices use the index itself: price then × (index now ÷ index then).
The BLS CPI inflation calculator does this with the US CPI-U, the all-items index for the U.S. city average. Other countries publish their own indexes, and rent or tuition can rise at a different rate.
Goals set decades ahead need the adjustment most. Over twenty years at 3%, a 1,000 expense becomes 1,806.11, so a target set at today's prices should be grown by the same factor before you save toward it.
To grow savings with regular deposits, use the compound interest calculator. The savings goal calculator finds the deposit for a target, and the retirement calculator plans around inflation-adjusted expenses.
Checked against: 1000·1.03^10 = 1343.9164; 1000/1.03^10 = 744.0939; 1.06/1.03 − 1 = 2.912621 %
Checked against: With π = 0 the real rate equals the nominal rate; 1000·1.06^10 = 1790.8477
Checked against: 100·0.98^5 = 90.3921; 100/0.98^5 = 110.6292; 1.01/0.98 − 1 = 3.0612 %
Checked against: 50000·1.065^20 = 176182.2532; 1.08/1.065 − 1 = 1.40845 %
Multiply today's price by (1 + inflation rate) raised to the number of years. At 3% a year, something costing 1,000 today costs 1,000 × 1.03^10 = 1,343.92 in 10 years, a total price rise of 34.39%. At 3.4% a year it would cost 1,397.03.
Divide (1 + nominal return) by (1 + inflation) and subtract 1, the Fisher relation. Savings earning 6% while prices rise 3% have a real return of 1.06 ÷ 1.03 − 1 = 2.9126% a year. The shortcut 6% − 3% = 3% overstates it slightly, and the gap grows with higher rates.
US consumer prices (CPI-U) rose 3.4% in the 12 months to August 2026, and 2.4% excluding food and energy, according to the Bureau of Labor Statistics. The Federal Reserve's target is 2% a year, measured by the PCE price index rather than the CPI; the Bank of England and the European Central Bank also target 2%.
ln 2 ÷ ln(1 + inflation rate) years. At 2% inflation cash loses half its purchasing power in 35.0 years, at 3% in 23.4 years and at 3.4% in 20.7 years. Even at a 2% target rate, 1,000 held as cash for 10 years loses 17.97% of what it can buy.
For planning only. Lenders, tax authorities and markets apply their own rounding, fees and rules; confirm figures with them before you commit.
This calculator includes 4 worked examples with independently sourced answers. They run in the test suite, and you can run them here too.