How inflation erodes purchasing power
If inflation runs at 3.5% per year, a basket of goods costing 1,000 today will cost about 1,411 in ten years in the same currency. This does not mean every price rises at the same pace. Housing, healthcare, energy, and education can move differently from the headline rate, while some manufactured goods may rise more slowly or even fall in price over certain periods.
The reverse calculation answers a different but equally important question: what is a future amount worth in present purchasing power? If you expect to need 50,000 a year in retirement in 20 years, and inflation averages 3%, that future amount has much less buying power in today’s terms. That is why an inflation-adjusted calculator is useful for long-horizon planning rather than just short-term price comparison.
Future amount = Present amount x (1 + rate)^years
Compound the present amount by the annual inflation rate over the number of years to find future cost.
Equivalent today = Future amount / (1 + rate)^years
Divide a future amount by the compounding factor to express it in today's purchasing-power terms.
Cumulative inflation = ((1 + rate)^years - 1) x 100
The total percentage price increase over the entire period, expressing the compound effect as a single figure.