Calculate how the value of money changes over time.
Calculation Summary
How Inflation Impacts Your Money
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, how purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
The Inflation Formula
To calculate the adjusted value of money over a period of time with a consistent inflation rate, we use the compound interest formula:
Adjusted Value = Initial Amount × (1 + Inflation Rate) ^ Number of Years
Real-World Example
Imagine you have $1,000 in the year 2010. If the average annual inflation rate is 2.5% over the next 10 years, how much would you need in 2020 to have the same "buying power"?
Initial Amount: $1,000
Years: 10 (2020 – 2010)
Rate: 2.5% (0.025)
Calculation: 1,000 × (1.025)^10 = $1,280.08
This means $1,280.08 in 2020 would buy you what $1,000 bought you in 2010. Conversely, your original $1,000 has lost significant purchasing power.
Why Track Inflation?
Understanding inflation is critical for long-term financial planning, particularly for retirement. If your savings are not earning an interest rate higher than the inflation rate, the "real value" of your wealth is actually decreasing over time. This is known as the "Inflation Tax."
function calculateInflation() {
var initialAmount = parseFloat(document.getElementById('initialAmount').value);
var avgRate = parseFloat(document.getElementById('avgRate').value);
var startYear = parseInt(document.getElementById('startYear').value);
var endYear = parseInt(document.getElementById('endYear').value);
var resultDiv = document.getElementById('inflationResult');
var resultContent = document.getElementById('resultContent');
if (isNaN(initialAmount) || isNaN(avgRate) || isNaN(startYear) || isNaN(endYear)) {
alert("Please enter valid numeric values in all fields.");
return;
}
if (endYear <= startYear) {
alert("End Year must be greater than Start Year.");
return;
}
var years = endYear – startYear;
var decimalRate = avgRate / 100;
// Future Value calculation (what that money is equivalent to in the future)
var futureValue = initialAmount * Math.pow((1 + decimalRate), years);
// Purchasing power calculation (what your current money will buy in the future)
var purchasingPower = initialAmount / Math.pow((1 + decimalRate), years);
var totalInflationPercent = (Math.pow((1 + decimalRate), years) – 1) * 100;
resultDiv.style.display = 'block';
var html = '
';
html += 'In the year ' + endYear + ', it would take $' + futureValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + ' to buy what $' + initialAmount.toLocaleString() + ' bought in ' + startYear + '.';
html += 'Cumulative Inflation: ' + totalInflationPercent.toFixed(2) + '%';
html += 'Purchasing Power Drop: Your original $' + initialAmount.toLocaleString() + ' will only have the buying power of $' + purchasingPower.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + ' (in ' + startYear + ' dollars) by the year ' + endYear + '.';
html += '