Inflation Calculator

About Inflation Calculator

Calculate the effect of inflation on purchasing power. This calculator provides instant results with step-by-step explanations to help you understand the calculation process.

Formula

How to use this calculator

1. Enter the starting amount of money, such as a wage, price, or savings balance.
2. Choose the base year and the target year you want to compare.
3. Type in the inflation rate if the tool asks for it, or use the built-in year-over-year data.
4. Click calculate to see the adjusted amount and the change in purchasing power.

The formula explained

A common inflation adjustment uses the idea that future price level is the present price level multiplied by an inflation factor. In simple form, the adjusted amount is found with \(A = P(1 + r)^t\), where \(P\) is the starting amount, \(r\) is the inflation rate per year, and \(t\) is the number of years.

• P = starting amount or original purchasing power
• A = inflation-adjusted amount
• r = annual inflation rate written as a decimal
• t = number of years

Step by step method

1. Identify the original amount and the time period you want to compare.
2. Convert the inflation rate to a decimal, so \(3\\%\) becomes \(0.03\).
3. Substitute the values into \(A = P(1 + r)^t\) and calculate the result.

Worked example

Problem. If \(500\) dollars in \(2020\) is adjusted for \(4\\%\) inflation per year over \(3\) years, what is the equivalent amount in \(2023\)?

1. Start with \(P = 500\), \(r = 0.04\), and \(t = 3\).
2. Substitute into the formula: \(A = 500(1 + 0.04)^3\).
3. Compute \(A = 500(1.04)^3 \\approx 500(1.124864) \\approx 562.43\).

Tips and common mistakes

• Be careful to use the inflation rate as a decimal, not as a whole number, so \(4\\%\) means \(0.04\).
• If you are comparing prices across many years, compound inflation is more realistic than adding the rate once.

Frequently asked questions