What is purchasing power and why does it matter?

Purchasing power is the real value of your money - how much it can actually buy. Inflation erodes purchasing power over time. At 3% annual inflation, $100 today buys only $74 worth of goods in 10 years. Understanding this is critical for retirement planning, savings targets, and evaluating pay rises.

What inflation rate should I use in my calculations?

Our calculator defaults to the current central bank target rate for each country: 2% for the US (Fed), 2% for the UK (BoE), 2.5% for Australia (RBA), and 2% for Canada (BoC). For personal planning, using a slightly higher rate (3–4%) builds in a safety margin.

How does inflation affect my loan and savings?

Inflation has opposite effects on debt vs savings. For fixed-rate debt, inflation actually helps borrowers - you repay with future money that's worth less. For savings in low-interest accounts, inflation erodes your real returns. If your savings rate is below inflation, you're losing wealth in real terms.

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Inflation Impact Calculator

See how inflation erodes your purchasing power over time.

Your Details

Present Value$20,000

Annual Inflation Rate8.5%

Time Horizon60 MO (5.0 yr)

Results

Purchasing Power

$30,073.13

Original Value: $20,000.00Value Lost: $10,073.13

Present Value

$20,000.00

Purchasing Power

$13,300.91

Value Lost

$10,073.13

Future Cost

$30,073.13

Estimates only - not financial advice. Verify with a qualified professional before making decisions.

What you could do instead

Two ways to play this - side by side

+47%better

Held as cash

Inflation eats 8.5%/yr - value silently shrinks

Invested @ 8%

Park in equity / index funds at 8% nominal

Original amount

$20,000.00

Original amount

$20,000.00

Future nominal value

$30,073.13

Future nominal value

$29,386.56

Real purchasing power

$13,300.91

Real purchasing power

$19,543.40

+$6,242.49 preserved

In today's money, you'd hold $19,543.40 of real value vs $13,300.91 as cash - 47% more purchasing power.

Savings Tip

Pay 10% extra each month

Pay just 10% extra ($14,631/mo) and save $9,892 in interest, becoming debt-free 58 months earlier.

New Monthly Payment$14,631+$1,330/mo extra

Total Interest Saved$9,89258 months sooner

* Based on 10% overpayment applied every month until payoff.

How It Calculates

$20,000.00 today feels like $13,300.91 in 60 months.

💡Total Interest on $20,000.00: $10,073.13

Purchasing Power Loss: $6,699.09

Tips to Save More

Diversifying into assets that outpace CPI is essential to preserve purchasing power.
Consider the 'Real Rate of Return' (Nominal Rate - Inflation) for all long-term holdings.

Example Scenarios

Sample scenarios using current reference rate data.

Reference Data

$15,000 over 3 years

8.5% APR

Monthly Payment$473.51

Total Interest$2,046.47

Your 36-month loan costs $473.51/mo. Total interest: $2,046.47.

Source: Reserve Bank of Australia · Updated 2026-04-01

$30,000 over 5 years

7.9% APR

Monthly Payment$606.86

Total Interest$6,411.43

Your 60-month loan costs $606.86/mo. Total interest: $6,411.43.

Source: Reserve Bank of Australia · Updated 2026-04-01

$45,000 over 4 years

8.2% APR

Monthly Payment$1,102.81

Total Interest$7,934.93

Your 48-month loan costs $1,102.81/mo. Total interest: $7,934.93.

Source: Reserve Bank of Australia · Updated 2026-04-01

How an inflation impact calculator works

An inflation calculator shows how the real purchasing power of a sum of money erodes over time at a given inflation rate. It uses the present-value formula in reverse - the same formula central banks use when comparing real wages or real interest rates across years.

The formula

Future cost = Present value × (1 + r)^n | Purchasing power = Present value ÷ (1 + r)^n

Present value = What an item or sum costs today.
r = Annual inflation rate (e.g. 3% = 0.03).
n = Number of years in the future.
Future cost = What the same basket of goods will nominally cost in n years.

Inputs explained

Present amount: The value or cost you want to project forward (or backward).
Inflation rate: An annual rate. Central bank targets are 2% (US, UK, Canada) and 2-3% (Australia); long-run actual rates vary.
Time horizon: How many years into the future you want to model.

When to use this calculator

Estimating how much your current savings will buy in retirement.
Setting a target salary or investment goal in 'today's money'.
Comparing a nominal return (e.g. 6% interest) with a real return after inflation.
Pricing long-term commitments (education, healthcare) in future-dated currency.

Common mistakes to avoid

Inflation Calculator - Frequently Asked Questions

Common questions about using this tool for AU.

Our inflation calculator shows you two things: (1) the future cost of something that costs a set amount today, and (2) the purchasing power - how much your money will be worth in real terms after a given period at a given inflation rate. Both are calculated using the compound inflation formula.

Built & maintained by: Dhanasekar · Developer

Formula reference: Reserve Bank of Australia

Data last updated: 1 April 2026

This is a free educational tool, not financial advice.

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Disclaimer

Important: This calculator provides estimates for informational purposes only and does not constitute financial advice. Actual rates and terms may vary. Always consult a qualified financial advisor before making financial decisions.

Rate reference: ASICReserve Bank of AustraliaUpdated 2026-04-01