CFI's inflation calculator will help you determine the change in the value of your money after a period of time. This change happens due to the effects of inflation – the increase in the overall price level of goods over time. In order to keep up with inflation, money needs to be invested at an interest rate at least equal to the inflation rate. This calculator uses an assumed inflation rate, start year, end year, and starting amount of money to calculate how much the starting amount will be worth by the end of the period.
Inflation RatesIn economics, inflation is the idea that the overall prices of goods increase over time. By observing a basket of goods – a set number of consumer items – annually, economists can calculate the consumer price index (CPI). Observing price indices is the primary way to calculate the inflation rate, with the CPI being the primary index. We can consider the following example to calculate inflation. The CPI for Country A was 220 at the end of 2017 (base year). At the end of 2018, the CPI for Country A was 230. We can determine the inflation rate by calculating the percentage change over this time period.
Inflation = (230-220)/220*100 = 4.55%You can input this inflation rate into CFI's inflation calculator to see its effect on the value of money over time.
Effects of InflationInflation is the overall rise in the price level. This means that over time, money loses purchasing power. For example, $200 today is worth more than $200 in 10 years, due to the effects of inflation. Looking at the preview of this inflation calculator, we can see that the assumed inflation rate is 2.5%. This implies that the price of a basket of goods increases by 2.5% every year. Thus, your money needs to increase at least 2.5% every year to keep up with the inflation of the economy. If you compare $2,000.00 in 2010, it would increase by 2.5% every year for 9 years to become $2,497.73 in 2019. Therefore, $2000.00 in 2010 should be worth $2,497.73, if we assume that the money has been accruing interest equal to the inflation rate. Check out CFI's Personal Finance Budget Template for another tool to help you make the most of your money! As well, CFI has courses such as our Financial Analysis Fundamentals course that can help you learn to better understand and use your money.
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