Purchasing Power Calculator

It means your money buys fewer goods and services than it used to, because inflation compounds and pushes prices up over time.

The number in your account is just that, a number: $1,000 stays $1,000. Buying power is what that $1,000 actually buys. After 20 years of 3% inflation, the $1,000 hasn't changed on screen, but it now buys only about what $553 buys today. You've lost 45% of what the money can buy, even though the figure looks the same.

They are two sides of the same coin. An inflation calculator usually shows how much a basket of goods will cost in the future (a rising number). This calculator shows the reverse: how much a fixed sum of money will be able to buy in the future (a falling real value). Use the inflation calculator to see future prices, and this one to see what your cash savings will actually be worth.

Most countries measure inflation with a Consumer Price Index (CPI): a statistics agency tracks the price of a fixed 'basket' of everyday goods and services (housing, food, transport, energy, and so on), each weighted by how much a typical household spends on it. The yearly change in that basket's cost is the headline inflation rate. Your own inflation can differ if your spending mix isn't average, which is what the personal inflation calculator estimates.

Cash sitting in a low-interest account almost always loses buying power, because its return is below inflation. Assets that have historically kept pace or done better over the long run include broad stock-market index funds, inflation-linked government bonds, and to varying degrees real estate. None of these is guaranteed, and all carry their own risks, but the general principle is that money needs to earn at least the inflation rate just to stand still in real terms.