The inflation formula
Future price = today's price × (1 + inflation rate)years
Future buying power = amount ÷ (1 + inflation rate)years
Example
At 3% a year, a $100 grocery bill today will cost about $134.39 in 10 years. Turned around,
$100 kept in cash for 10 years will only buy what $74.41 buys today.
The rule of 72 for inflation
Divide 72 by the inflation rate to estimate how many years it takes prices to double. At 3%, prices double
in about 24 years; at 6%, in about 12. See our guide to compound interest
for more on this rule.
Frequently asked questions
What is inflation?
Inflation is the general rise in prices over time. When inflation is 3% a year, something that costs $100 today costs about $103 next year, so each dollar buys a little less.
What inflation rate should I use?
Many central banks, including the US Federal Reserve and the European Central Bank, target about 2% a year. Over the long run US inflation has averaged a little over 3% a year. Use the rate that fits the period you're interested in.
How do I calculate inflation over several years?
Inflation compounds, just like interest. Multiply by (1 + rate) once for every year: $100 at 3% for 10 years becomes 100 × 1.03¹⁰ ≈ $134.39, not $130.
How can I protect my savings from inflation?
Money in a bank account that pays less than inflation loses buying power. Over long periods, investments such as diversified stock funds have historically grown faster than inflation, and some governments offer inflation-linked bonds.
