Calculate the future value of money due to inflation or the past value adjusted for inflation.
Result:
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Understanding Inflation Calculations
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
Calculating Future Value of Money
This calculation determines how much a certain amount of money will be worth in the future, given a consistent rate of inflation. The formula used is:
Future Value = Present Value * (1 + Inflation Rate)^Number of Years
Where:
Present Value: The initial amount of money you have today.
Inflation Rate: The average annual percentage increase in prices (expressed as a decimal in the calculation, e.g., 3.5% becomes 0.035).
Number of Years: The period over which inflation is expected to occur.
For example, if you have $1,000 today and expect an average annual inflation rate of 3.5% for 10 years, the purchasing power of that $1,000 in 10 years will be approximately $1,000 * (1 + 0.035)^10 = $1,410.59. This means you would need $1,410.59 in 10 years to buy what $1,000 buys today.
Calculating Past Value of Money
This calculation works in reverse, determining what a past amount of money would be equivalent to in today's terms, adjusted for inflation. The formula is:
Past Value (in today's terms) = Future Value * (1 / (1 + Inflation Rate)^Number of Years)
Or equivalently:
Past Value (in today's terms) = Future Value / (1 + Inflation Rate)^Number of Years
Where:
Future Value: The amount of money in a past period that you want to compare to today's value.
Inflation Rate: The average annual percentage increase in prices during the period (expressed as a decimal).
Number of Years: The number of years between the past period and today.
For instance, if you received $1,000 ten years ago, and the average annual inflation rate during that decade was 3.5%, the purchasing power of that $1,000 in today's terms is approximately $1,000 / (1 + 0.035)^10 = $708.92. This indicates that the $1,000 received a decade ago has the same purchasing power as $708.92 today.
function calculateInflation() {
var initialValue = parseFloat(document.getElementById("initialValue").value);
var annualInflationRate = parseFloat(document.getElementById("annualInflationRate").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultElement = document.getElementById("inflationResult");
if (isNaN(initialValue) || isNaN(annualInflationRate) || isNaN(numberOfYears)) {
resultElement.textContent = "Please enter valid numbers.";
resultElement.style.color = "red";
return;
}
if (annualInflationRate < -100) { // Prevent unrealistic negative rates
resultElement.textContent = "Inflation rate cannot be less than -100%.";
resultElement.style.color = "red";
return;
}
if (numberOfYears < 0) {
resultElement.textContent = "Number of years cannot be negative.";
resultElement.style.color = "red";
return;
}
var rateDecimal = annualInflationRate / 100;
var futureValue = initialValue * Math.pow((1 + rateDecimal), numberOfYears);
resultElement.textContent = "$" + futureValue.toFixed(2);
resultElement.style.color = "#28a745"; // Success Green
}
function calculatePastValue() {
var initialValue = parseFloat(document.getElementById("initialValue").value); // Treat initialValue as the past value in this context
var annualInflationRate = parseFloat(document.getElementById("annualInflationRate").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultElement = document.getElementById("inflationResult");
if (isNaN(initialValue) || isNaN(annualInflationRate) || isNaN(numberOfYears)) {
resultElement.textContent = "Please enter valid numbers.";
resultElement.style.color = "red";
return;
}
if (annualInflationRate < -100) { // Prevent unrealistic negative rates
resultElement.textContent = "Inflation rate cannot be less than -100%.";
resultElement.style.color = "red";
return;
}
if (numberOfYears 0
if (rateDecimal 0) {
resultElement.textContent = "Calculation not possible with -100% inflation over multiple years.";
resultElement.style.color = "red";
return;
}
var pastValue = initialValue / Math.pow((1 + rateDecimal), numberOfYears);
resultElement.textContent = "$" + pastValue.toFixed(2);
resultElement.style.color = "#28a745"; // Success Green
}