Inflation and purchasing power calculator

Inflation is a silent tax on idle money. At 3% a year, £1,000 left untouched for ten years only buys what £744 buys today.

The calculator shows both sides: what your money loses and how much prices rise.

Inflation compounds. For purchasing power the amount is divided by the accumulated factor; for the future price it is multiplied by that same factor.

Purchasing power slips away unnoticed

Three per cent inflation a year looks harmless, but over twenty-four years it halves what you can buy with the same money. The rule of 70 sums it up: divide 70 by the inflation rate to get roughly how many years money takes to lose half its value.

The CPI does not measure your inflation

The official index weights an average basket of spending. If you spend a much larger share of your income on rent or energy, your personal inflation can be considerably higher than the published figure. A pensioner, a student and a family on a fixed mortgage all face different real inflation even though there is only one CPI.

Nominal and real

A two per cent pay rise with three per cent inflation is a loss of purchasing power, not an increase. All comparisons of wages, pensions or returns over time should be made in real terms to mean anything.

Deflation is not good news

Falling prices sound appealing, but they discourage consumption and investment: if something will cost less in six months, the purchase is postponed. Central banks generally target slightly positive figures, around two per cent, precisely to avoid it.