What will that be worth later?
Both directions: what today’s amount will cost in future, and what a future amount is worth now.
Many central banks target around 2%. Actual inflation has run both well above and below that.
What $1,000 of shopping costs in 20 years
$1,486
At 2% a year, the things $1,000 buys today would cost $1,486 in 20 years. Put another way: cash left under the mattress would have lost 49% of its purchasing power without a single number in your account changing.
- Today
- $1,000
- In 20 years
- $1,486
- Purchasing power change
- −49%
The same amount, over time
| Years | It costs | Change |
|---|---|---|
| 5 | $1,104 | +10% |
| 10 | $1,219 | +22% |
| 20 | $1,486 | +49% |
| 30 | $1,811 | +81% |
This is why a savings account paying less than inflation loses money in real terms even though the balance goes up. The growth calculator can show the same pot in today’s money — turn on the inflation option there.
Two questions, one piece of arithmetic
What will this cost later? takes an amount today and compounds it forward at the inflation rate. What is that future amount worth? takes a future sum and discounts it back. They are the same equation pointed in opposite directions, and which one you want depends on whether you are budgeting for a future purchase or trying to interpret a projection someone handed you.
The second is the one worth reaching for more often. Any figure quoted for decades ahead — a pension projection, a savings target, the output of a growth calculator — is denominated in money that will buy less than today's. Discounting it back is the only way to know whether it is a large number or merely a long one.
Why this is the quiet one
A market fall announces itself. Inflation does not: your balance goes up every year, the number in the app is larger than it was, and the erosion happens entirely on the other side of the transaction. Cash paying 1% while prices rise 3% loses 2% a year in real terms, and every statement will show a gain.
This is the mechanism behind the phrase "cash is not risk-free". It is free of the risk of the number falling. It is not free of the risk of the number buying less, and over long periods that second risk is the larger one.
Which rate to use
Many central banks target something around 2%, which is why that is the starting value here. Actual inflation has run well above and well below target for extended stretches, and the inflation you personally experience depends on what you buy — housing, education and healthcare have often risen faster than the headline basket.
As with returns, the tool will not tell you the right figure. Try a couple and see how much the answer moves; over thirty years the difference between 2% and 4% is not a detail.
Common questions
Is this the same as an official inflation calculator?
How does this relate to investment returns?
Why is compounding used for inflation too?
Not advice. This tool applies arithmetic to assumptions you entered. It does not know your circumstances, your tax position or your goals, and it is not a recommendation to buy, sell or hold anything. Past returns do not predict future ones, and no figure here is a forecast.