How inflation compounds
Inflation is the steady rise in the general price level, which means the same goods cost more each year. The future cost of something is future cost = present amount × (1 + rate ÷ 100)years, where the rate is the annual inflation rate. Because it compounds, even a modest 3% rate roughly doubles prices over about 24 years. The flip side is that the purchasing power of a fixed amount of cash falls by the same factor. Inflation compounds exactly the way interest does in the compound interest calculator, only against you.
How to use this calculator
Enter the present amount (today's cost or value), the expected inflation rate, and the number of years ahead. The tool returns the future cost and how much it has risen. Use it to sanity-check whether a salary or savings target keeps pace with the cost of living — pair it with the hourly to salary calculator when evaluating a raise. To discount a future sum back to today's money, use the present value calculator.
Worked example
If $1,000 of goods inflates at 3% for 10 years: 1,000 × (1 + 0.03)10 ≈ $1,343.92, an increase of about $344. Higher rates bite far harder:
| Inflation rate | Cost of $1,000 in 10 yrs |
|---|---|
| 2% | $1,219 |
| 3% | $1,344 |
| 5% | $1,629 |
| 8% | $2,159 |
These figures are an estimate for general information only and are not financial advice; consult a qualified professional before making money decisions. Comparing an investment's growth to inflation is easiest with the CAGR calculator.
Frequently asked questions
- How do I calculate future cost with inflation?
- Multiply the present amount by (1 + inflation rate ÷ 100) raised to the number of years. For example, $1,000 at 3% for 10 years is about $1,343.92.
- What will $1,000 cost in 10 years at 3% inflation?
- About $1,343.92, an increase of roughly $344 over today's price, because inflation compounds each year.
- How does inflation affect cash savings?
- It erodes purchasing power. If your money earns less than the inflation rate, it buys less over time even though the dollar amount stays the same.
- What inflation rate should I use?
- Many planners use a long-run average of 2–3% for general prices, but you can enter any rate to model different scenarios for specific costs.
- Does inflation hit every price equally?
- No. The headline rate is an average across a basket of goods, and categories such as rent, healthcare and education often rise faster than electronics or clothing. If you are modelling one specific cost, enter a rate that matches that category rather than the national average.