Purchasing Power Calculator

The formula this calculator uses

Real Value = Nominal Amount / (1 + i)^n

Real Value

The nominal amount restated in today's purchasing power

Nominal

The face amount of money, unadjusted

i

Annual inflation rate as a decimal (3% = 0.03)

n

Number of years

(1 + i)^n

The cumulative price-level increase over the whole period

How to check the result by hand

1. 1

   Choose the inflation rate and its period

   Use the annual average you believe applies. For historical comparisons use published index data; for forward planning use a long-run assumption rather than the most recent print, which is usually unrepresentative of twenty years.

2. 2

   Convert the percentage to a decimal

   3% becomes 0.03. Leaving it as 3 inflates the price-level factor by orders of magnitude and produces a nonsense result.

3. 3

   Build the cumulative price factor

   Add one and raise to the number of years: 1.03^20 = 1.80611. This single number is the accumulated price increase, and it is what every amount must be divided by.

4. 4

   Divide the nominal amount by that factor

   $100,000 / 1.80611 = $55,367.58. That is what twenty-years-from-now money is worth in today's terms — equivalently, what today's $55,367.58 will have become in nominal terms.

5. 5

   Read the retained fraction and the absolute loss

   Dividing retained value by the original gives 0.55368, meaning 55.4% of buying power survives and 44.6% has gone. The difference, $44,632.42, is the purchasing power lost purely to holding cash rather than to any spending.