Future purchasing power, how much inflation takes from your money

Calculate how inflation changes the purchasing power of your money in the years ahead

Inflation reduces the purchasing power of money over time. With this calculator you can see what an amount will be worth in purchasing power a number of years from now at a given annual inflation rate, so you can convert future amounts into today's prices.

Inflation means prices go up and the same amount buys less over time. With this calculator you can see what an amount will be worth in purchasing power a number of years from now at a given annual inflation rate, so you can convert future amounts into today's prices.

How to use the calculator

• Amount: the amount you want to project, for example your savings or a future payout.
• Annual inflation: the average yearly price increase you expect. 2% matches the inflation target of both the European Central Bank and the US Federal Reserve.
• Number of years: how far ahead you want to calculate.

The result shows what the amount is worth in today's purchasing power and what percentage of the purchasing power has been lost. The chart shows the erosion year by year.

How purchasing power is calculated

The calculator discounts the amount by inflation:

purchasing power = amount / (1 + inflation / 100)^years

Read the result like this: if you have €100,000 fifteen years from now, at 2% annual inflation it will buy as much as €74,301 does today. The balance in your account has not changed, but more than a quarter of its purchasing power is gone.

Example

€100,000 projected fifteen years ahead:

• At 2% inflation: €74,301 in today's purchasing power, a loss of 25.7%.
• At 4% inflation: about €55,500, a loss of almost half.

The difference between 2% and 4% sounds small, but over fifteen years it grows to almost €19,000 of lost purchasing power on an amount of that size. That is why inflation is often called a hidden tax on cash: you do not notice it from month to month, but it adds up.

A rule of thumb is the rule of 72: divide 72 by the inflation rate and you get roughly the number of years it takes to halve your purchasing power. At 2% that is about 35 years, at 4% about 18 years.

How to protect your savings against inflation

Cash and ordinary bank accounts usually lose purchasing power, because the interest rate is often lower than inflation. For your savings to keep or grow their purchasing power, you need a return that is higher than inflation. Over long periods, stocks and bonds have historically delivered a positive real return, but with ups and downs along the way.

Real return is calculated like this:

real return = (1 + return) / (1 + inflation) - 1

If your savings earn 7% while inflation is 2%, the real return is about 4.9%, not 5%. The difference is small in one year but noticeable over decades.

You can use the compound interest calculator to see what your savings can grow to at a given return, and then compare the result with the projection here. If you want to see what inflation has actually done to the value of money in the past, try the historical inflation calculator.

Sources

The calculator uses the inflation rate you choose yourself and does not fetch any external data. To pick a reasonable rate, you can start from:

• The 2% inflation target of the European Central Bank and the US Federal Reserve.
• Historical inflation, measured by consumer price indexes: the euro area index from Eurostat and the US index from the U.S. Bureau of Labor Statistics.

Frequently asked questions

What does purchasing power mean?

Purchasing power is how many goods and services an amount of money can buy. When prices rise, the purchasing power of the same amount falls. €100,000 is still €100,000 fifteen years from now, but if prices have risen by 2% a year in the meantime, it will only buy about as much as €74,000 does today.

How is future purchasing power calculated?

The amount is divided by (1 + inflation) raised to the power of the number of years. At 2% inflation over fifteen years, the amount is divided by 1.02 to the power of 15, which is about 1.35. The calculation assumes inflation is the same every year, so the result is a projection, not a forecast.

What inflation rate is reasonable to assume?

Both the European Central Bank and the US Federal Reserve aim for inflation of 2% a year, and over recent decades inflation in the euro area and the US has averaged roughly that. Single years can be very different, though: in 2022 inflation was around 8% on both sides of the Atlantic. 2% is a reasonable starting point for long periods, and you can try higher rates to see how sensitive the result is.

How quickly does inflation halve the value of money?

A rule of thumb is to divide 72 by the inflation rate. At 2% a year, purchasing power is halved after about 35 years, at 4% after about 18 years and at 7% after only about 10 years. Even low inflation takes a big bite when the period is long enough.

How is this different from the inflation calculator?

This calculator looks forward and uses an inflation rate you choose yourself. The inflation calculator looks back and uses actual historical statistics to convert amounts between years, for example what $100 in 1990 is worth today.

Try the historical inflation calculator

What is real return?

Real return is your return after inflation, in other words the increase in your purchasing power. If an investment returns 7% while inflation is 2%, the real return is about 4.9%. It is the real return that decides whether your savings actually become worth more.