How to calculate the effect of inflation
Inflation erodes purchasing power at a compounding rate. To see what a sum is really worth in future money, discount it by the inflation rate for each year that passes.
The rule
Real value = nominal amount ÷ (1 + inflation rate)^years
Do it automatically — Inflation calculatorStep by step
- 1Take the amount and the number of years.
- 2Pick an inflation assumption — the central bank target is a reasonable default.
- 3Divide by one plus the rate, compounded for each year, to see today's-money value.
- 4For salaries, compare your pay rise against inflation to see whether it is a real rise or a real cut.
What trips people up
- • Your personal inflation rate depends on your spending mix and can be well above the headline figure.
- • Cash savings below the inflation rate lose real value every year even while the balance grows.
Common questions
Is a 3% pay rise good?
Only if inflation is below 3% — otherwise it is a real-terms pay cut.
What beats inflation?
Historically, long-term investment in real assets; short-term, inflation-linked savings products.
Skip the maths
See how much purchasing power money keeps or loses over a chosen period.
Open the real value over time tool