Over time, the average cost of goods and services tends to increase. As a result, you’ll need more money in order to purchase the same thing—that’s called inflation. The opposite of inflation is deflation, where the price of goods and services decreases over time. Over the past hundred years, however, the more common phenomenon is inflation. On average, between the start of the 20th century and today, the inflation rate has been around 2-3% or so.
Why is inflation important? Inflation affects the prices of everything: from the things you need day-to-day to luxury goods and services. When inflation rates are high, and wages are stagnant, it can become a serious problem for people trying to get by. If you’re curious how much money was worth in the past, or you want to get an idea of how much it might be worth in the future, it’s helpful to try out our inflation calculator.
This calculator was made using public info from the Bureau of Labor Statistics, at https://www.bls.gov.
Here’s what we’ll cover in this post:
- How to Use Our Free Inflation Calculator
- Inflation Calculator FAQs
- Easily Manage Your Budget & Investments
How to Use Our Free Inflation Calculator
Follow the simple steps below to see how inflation will affect your earnings and investments.
Step 1: Enter the Starting Amount
Start by inputting your starting amount. This might be the amount you have in savings, the amount you have invested in an investment account, or your retirement. Note that inflation does not take into account factors like interest accruing or the investor adding more money to the account.
Step 2: Select the Year You Want to Start Measuring Inflation from
In the section labeled Select Initial Year, you have two options:
- Choose the current year to see how much your starting amount will be worth in the future.
- Or, input the year you first started investing to get a more cumulative estimate of the amount that inflation has affected your investing.
Step 3: Select the Final Year You Want to Measure Inflation to
In the section labeled Select Final Year, add the year that you plan on withdrawing your investment—or simply a year in the future that you’re curious about. This could be the date when you plan on retiring, or it might be a year in the future when you estimate you will be interested in making a large purchase, like a home or a new car.
Step 4: Review Your Results & Plan Accordingly
Lastly, simply view your results. With these results in mind, you can better plan for future expenses, investments, and savings. Inflation isn’t the only factor that goes into financial planning, but it’s one that many people often forget to consider as they make long term plans for their money. Having one eye on the inflation rate and using an inflation calculator can be a great addition to your current planning habits.
Inflation Calculator FAQs
Inflation is confusing—we get it. Once you’ve used our free inflation calculator, check out the most common questions Minters ask about inflation to see if we can answer something that’s been on your mind.
1. How Has Inflation Behaved Throughout History?
Inflation has changed significantly throughout US history. Large economically significant events like the Depression, WWII, and even the moon landing have all had effects on the inflation rate. The inflation rate is often tied to how well the economy is doing. Most economists estimate that around 2% is healthy; lower, and the economy may not be growing enough. Faster, and people may struggle to keep up with rising prices.
The U.S. inflation rate reached an all-time high of 23.7% in June of 1920, at the start of the roaring 20s when economic output was high. One of the lowest periods of inflation was a period of deflation during the Great Depression in the 1930s. Over the past decade, inflation has hovered around 2%—though in the year since 2021, it has increased significantly.
2. How Does a Rising Inflation Rate Impact My Earnings?
Salary increase should be equal to or greater than the rate of inflation in order to maintain stable purchasing power.
If your rate of salary increase is below the rate of inflation, you’re losing purchasing power year over year. High inflation puts strain on businesses to pay their workers more, and puts even more strain on working people who need to have stable purchasing power to get by.
If your salary increases don’t match the rate of inflation, you may need to supplement your salary with side income. This might be through a second job or through investments. You may also want to look for a job that does increase its salary in pace with (or, even better, faster than) the rate of inflation.
3. How Can I Budget with Inflation in Mind?
Rising inflation can make everything more expensive. If your purchasing power isn’t increasing at the same rate as inflation, it may be harder to buy the same things that you purchased easily just months prior.
Lately, many people have noticed that prices have increased for everything from used cars and rent to a cup of coffee and a sandwich. According to the latest numbers, the Consumer Price Index rose 5.3% over the year ending August 2021.
What does that mean? It’s time to add inflation to your budget considerations. As you plan your future spending, be sure to think about how much more money you’re likely to need to purchase the same thing a few months or years from now.
Pro tip: Use an inflation calculator to see how much something worth a certain dollar amount will be worth in the future—and use our budgeting calculator for quick insights into your finances.
4. How Are Investments Affected By Inflation?
All investments are affected differently by inflation. Money sitting in a savings account with an interest rate lower than the rate of inflation will actually lose value. That’s why it’s often important to invest a portion of your savings in an account or asset whose value will increase at a faster pace than the rate of inflation.
Some investments, however, can increase in value with inflation. For example, the impact of inflation on housing is different. Property can become more expensive over time, meaning an investment in property will actually increase in value as inflation continues. This is good for homeowners but bad for homebuyers looking for a deal.
5. What Kinds of Investments Fare Best Under Rising Inflation Rates?
As mentioned, there are some investments that do well under inflation and some that do not. Here are some of the best assets to invest in to protect against a period of high inflation:
- Precious metals (like gold): As the price of everything goes up, the price of gold goes up as well. Plus, many people may be looking for a stable commodity when inflation rises, making gold a useful asset to have in hand. It can also be lucrative to invest in precious metals such silver, platinum, and palladium.
- Real estate investments: Real estate also tends to increase in value along with inflation, making it a fairly safe choice as long as you can afford to maintain it.
- Commodities: Many commodities can be a useful investment during inflation. That’s because, as the price of the commodity goes up, the cost of the parts necessary to make it go up too.
- Treasury inflation-protected securities (TIPS): These securities put out by the US treasury are indexed to the inflation rate, meaning that, as inflation increases, their value does too. They are totally protected against inflation. The bad news? They also don’t produce a significant profit compared to other investment types.
Depending on your rate of return, other investment types, like mutual funds, government bonds, or dividend stocks can also outpace inflation, turning a profit. Ultimately, it’s important to research or talk with a broker about the best choice for your portfolio.
6. How Can You Prepare for Retirement Based on Forecasted Inflation?
The best way to prepare for retirement is to start saving early. Most retirement accounts, like IRAs and 401ks, use mutual funds or ETFs that are indexed to the stock market to grow your savings. With the power of compound interest, this can result in a higher value that outpaces the rate of inflation.
In addition to starting early, it’s smart to invest in some safer, more stable investments that can protect against inflation, such as property. You may also receive a pension from work, as well as Social Security income, which is adjusted to account for inflation.
Easily Manage Your Budget & Investments
Keeping an eye on your budget and investments can be hard—especially if you’re also accounting for inflation. Mint can help. Whether you’re using an inflation calculator like the one on this page, or you simply want to keep tabs on your different investment accounts, using Mint is a great way to manage your finances. The Mint App makes it easy to view all your assets on one intuitive dashboard, track your net worth, and plan a budget for each month. So no matter what the inflation rate is, you can make sure you have the data you need to plan ahead.