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.
What is inflation
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%.
How to calculate inflation rate
- Let's start with determining the time frame. Enter the start and end year into our inflation calculator. For example, you can calculate the inflation rate between 2015 and 2016.
- Determine the price of any product in the start year. For example, one liter of beer during Oktoberfest cost € 10.30.
- Determine the price of the same product in the end year. The price of Oktoberfest beer rose to € 10.60.
- Use the following formula:
inflation = (FP / IP) ^ (1/t), where
IPis the initial price,
FPis the final price,
tis time elapsed (in years).
- You can use our inflation calculator to find the result, too. In this case, the inflation rate is 2.91% - pretty normal for a developed country.
Inflation and investments
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.