Inflation Calculator
Discover how inflation erodes the purchasing power of your money over time.
Nominal value vs real value over time
How the purchasing power of the amount decreases
What is inflation and why does it matter to investors?
Inflation is the generalised and sustained increase in prices over time. As a result, the same amount of money buys fewer goods and services as years pass. An annual inflation of 2% seems small, but over 20 years it reduces purchasing power by almost 33%.
Nominal value vs real value
- Nominal value: the amount of euros you have. Does not change if you do not move the money.
- Real value: what you can buy with that money. Decreases each year with inflation.
- To maintain the real value of your money, you need your investment to return at least as much as inflation grows each year. If inflation is 2%, you need a minimum return of 2% just to avoid losing purchasing power.
Inflation and the rule of 70
A quick rule to estimate when purchasing power halves: 70 / inflation rate = years until money is worth half. With 2% inflation, money loses half its value in ~35 years. With 7% inflation, in just 10 years.
How to protect against inflation?
- Invest in assets that historically outpace inflation (diversified equities).
- Inflation-linked bonds (TIPS in the US, CPI-linked bonds in Europe).
- Real estate: historically maintains real value, though with low liquidity.
- Avoid keeping large amounts in cash or non-yielding accounts for long periods.
How the loss of purchasing power is calculated
Inflation acts like compound interest in reverse: it erodes the value of your money year after year. The real value of an amount in a few years is calculated as:
And in reverse, to find what something that costs X today will cost in the future: Future cost = X × (1 + inflation)^years.
Example: €10,000 with 3% inflation
With 3% inflation, what costs €10,000 today will cost around €18,100 in 20 years. Put the other way: those €10,000 kept without any return would only buy the equivalent of about €5,500 today. That is why inflation that "seems small" is so damaging over the long term: at 3% per year, money loses half its purchasing power in just over 23 years.
Common mistakes when thinking about inflation
- Believing "idle" money does not lose value. Even if your account balance does not drop, its purchasing power does fall every year with inflation.
- Looking only at the nominal return. What matters is the real return (return − inflation). 3% with 3% inflation does not make you richer.
- Underestimating the long term. 2-3% per year seems little, but compounded over 20 or 30 years it cuts purchasing power by half or more.
- Keeping an excessive cash buffer. Having liquidity for emergencies is healthy; keeping too much, for years and with no return, is losing money in real terms.
Frequently asked questions about inflation
What is the difference between nominal value and real value?
Nominal value is the number of euros you have; real value is what you can buy with them. If you have €10,000 and prices rise, you still have €10,000 (nominal) but they buy fewer things (real). The calculator shows both.
What average inflation should I use?
The European Central Bank targets inflation close to 2% over the medium term, which is often used as a reference. In specific periods it can be much higher, so it is wise to test several scenarios (2%, 4%, 6%) to see the range of impact.
What is the rule of 70?
It is a shortcut to estimate when purchasing power halves: divide 70 by the inflation rate. At 2%, money is worth half in ~35 years; at 7%, in just 10 years.
How do I protect myself from inflation?
The usual way is to invest in assets that historically beat inflation over the long term (diversified equities), inflation-linked bonds or real estate, and to avoid holding large amounts of cash for years. Diversifying and thinking long term are the keys.
Does inflation affect debts?
Yes, and sometimes in the debtor's favor: with a fixed-rate debt, inflation reduces the real value of what you repay over time. Conversely, it hurts those holding cash. This is one reason inflation redistributes wealth between savers and debtors.
