If you ever wondered why the prices always seem to increase, this inflation calculator is definitely going to help you. Read on to learn what is inflation, how to calculate the inflation rate, and how does it influence your savings.
Inflation is defined as a continuous increase in prices of goods and services. If inflation is higher than zero, then the currency gradually loses its purchasing power, so its value decreases in time.
Inflation is a natural phenomenon in economy. Most developed countries have a stable inflation of 2-3%.
inflation = (FP / IP) ^ (1/t), where
IPis the initial price,
FPis the final price,
tis time elapsed (in years).
We don't normally keep money in a locked box. Rather, we prefer to put our savings on special accounts or invest them. With a given interest rate, our savings increase from some present value to a higher future value. For example, if you invested $ 1000 with an 8% yield, you will have $ 1080 after a year... Right?
Unfortunately, wrong. Inflation causes decrease in value of money. So even though you will have $ 1080 in your account, each one of these dollars will be worth a bit less than it was a year earlier. If the inflation is 3%, then the real value of the money in your account is only $ 1050.