Inflation: what a fixed price actually costs you later
Inflation isn't a vague feeling that things cost more — it's one formula, compounding. Once you can run it by hand, you can put a real number on "prices will probably be higher later" instead of just assuming it.
The formula
Future cost = amount × (1 + rate ÷ 100)years. The rate compounds year over year, the same way interest does — a price doesn't just rise by the rate once, it rises by the rate applied to an already-higher price each year after.
A real example: a weekly grocery bill, 5 years out
A household spends $150 a week on groceries today. Assume a steady 3% annual inflation rate.
- Future weekly cost:
150 × (1.03)5 ≈ $173.89.
The same grocery list costs about $23.89 more a week in 5 years — not because anything changed about what's in the cart, just because of five years of 3% compounding.
A real example: the same bill, 20 years out
Stretch the same $150-a-week bill and the same 3% rate to 20 years instead of 5.
- Future weekly cost:
150 × (1.03)20 ≈ $270.92.
That's 270.92 − 173.89 = $97.03 more per week than the 5-year projection — from the same starting price and the same rate. Time, not the rate, is doing most of the work here: compounding needs years to build up, and the last 15 years added far more dollars than the first 5.
A real example: why the rate matters more than the years
A $50,000 car, 10 years out, compared at two different inflation assumptions.
- At 3%/yr:
50,000 × (1.03)10 ≈ $67,195.82. - At 6%/yr:
50,000 × (1.06)10 ≈ $89,542.38.
Doubling the rate — not the years — adds 89,542.38 − 67,195.82 = $22,346.56 to the projection. A small change in the assumed rate swings the answer more than a small change in the timeframe, which is exactly why the rate you plug in deserves more scrutiny than the calendar.
What this doesn't capture
Inflation isn't a constant, steady number in real life — it moves year to year with the economy, and a single assumed rate is a planning simplification, not a forecast. This also only tracks a rising price; it says nothing about whether your income or savings are keeping pace. For the actual current inflation rate, check a primary source like the U.S. Bureau of Labor Statistics' CPI data rather than assuming last year's number holds.
Run your own numbers
The free Inflation calculator runs this instantly for your own amount, rate and timeframe — entirely on your device.