What is inflation and why it matters
Inflation is the sustained and widespread increase in prices of goods and services in an economy over a period of time. Its direct effect: money loses purchasing power.
Simple example: If inflation is 3% annually, something that costs €100 today will cost ~€103 in a year. Your €100 “are worth” less.
This calculator helps you quantify that loss (or gain, if looking at the past) in three different scenarios.
Three calculation modes: what question do they answer?
| Mode | Question answered | Formula | Typical Use Case |
|---|---|---|---|
| Forward | “How much will X cost in N years?” | FV = PV × (1 + i)^n |
Retirement planning, future budgets, future pricing |
| Backward | “How much was X worth N years ago in today’s money?” | PV = FV / (1 + i)^n |
Compare historical salaries, inheritances, old prices |
| Cumulative | “What’s the total % increase over N years?” | % = [(1 + i)^n - 1] × 100 |
Macro analysis, compare periods, general index |
Where:
FV= Future Value / FinalPV= Present Value / Initiali= Annual inflation rate (decimal: 3% → 0.03)n= Number of years
The magic of compound interest (applied to prices)
Inflation compounds means each year’s increase is calculated on the already inflated price from the previous year, not the original.
Year 0: 1,000.00 €
Year 1: 1,000 × 1.03 = 1,030.00 € (+30.00)
Year 2: 1,030 × 1.03 = 1,060.90 € (+30.90) ← increase on 1,030, not 1,000
Year 3: 1,060.90 × 1.03 = 1,092.73 € (+31.83)
Year 4: 1,092.73 × 1.03 = 1,125.51 € (+32.78)
Year 5: 1,125.51 × 1.03 = 1,159.27 € (+33.76)
↑
Total 5 years: +15.93% (not 15% linear)Rule of 72 (approximation):
Years to double prices ≈ 72 / annual inflation %. With 3% → ~24 years. With 6% → ~12 years.
Preset rates: approximate official sources
| Preset | Institute | Approx. Rate | What it measures |
|---|---|---|---|
| Spain (INE) | Instituto Nacional de Estadística | ~3.2% | General CPI (recent annual average) |
| Eurozone (ECB) | European Central Bank | ~2.8% | HICP (Harmonised Index of Consumer Prices) |
| USA (BLS) | Bureau of Labor Statistics | ~3.1% | CPI-U (Consumer Price Index for All Urban Consumers) |
| UK (ONS) | Office for National Statistics | ~4.0% | CPIH (includes housing costs) |
Important: These are approximate recent annual averages for quick calculations. For real financial decisions, use monthly historical series from each institute (available on their websites) and apply month by month.
Year-by-year breakdown: what you see in the table
| Column | Meaning |
|---|---|
| Year | Fiscal year / calendar year |
| Value | Amount adjusted at end of that year |
| Year change | How much it went up/down in euros that specific year |
| Cumulative % | Total increase/decrease from initial year to that year |
In backward mode, the table goes from final year to initial (descending) and “year change” is negative (what you “save” by going to the past).
Big Mac comparison: tangible purchasing power
The Big Mac Index (The Economist, 1986) compares Big Mac prices across countries to estimate purchasing power parity (PPP).
This calculator uses a reference Big Mac ~€5.50 to give you a tangible intuition:
“With €1,000 in 2010 you could buy ~182 Big Macs. In 2024 that equals ~130 Big Macs.”
Not an official index, but helps visualize: how many burgers (or bread, milk, rent) do you lose to inflation?
Practical examples
1. Retirement: how much will I need in 20 years?
- Current estimated spending: €2,500/month
- Average inflation: 2.5% (ECB target)
- Result: 2,500 × (1.025)^20 = €4,101/month
- You need ~64% more nominal to maintain lifestyle.
2. Historical salary: what was my 2005 salary worth today?
- 2005 salary: €1,800/month
- Spain avg inflation 2005-2024: ~2.8%
- Backward mode: 1,800 / (1.028)^19 = €1,088 of 2005 = €1,800 of 2024
- Your real purchasing power only increased if your current salary > €1,800 adjusted.
3. Cash under mattress: silent loss
- €10,000 saved 10 years with no interest
- Inflation 3% average
- Real value today: 10,000 / (1.03)^10 = €7,441
- You’ve lost €2,559 purchasing power without moving the money.
Limitations and nuances
| Limitation | What it implies |
|---|---|
| Constant rate | Tool uses an average; real inflation varies monthly |
| General CPI | Your personal inflation depends on your consumption basket (rent, childcare, fuel…) |
| Substitution | When a good’s price rises, people buy alternatives → CPI may overestimate |
| Quality | Products improve (phones, cars) → part of price increase isn’t “pure inflation” |
| Official vs perceived | Official stats have methodology; citizen perception is usually higher |
For serious financial planning: use real monthly series, consider your personal basket and consult a financial advisor.
Try the calculator now
Calculate inflation’s impact on your money. 3 modes, 4 official presets, yearly breakdown and Big Mac comparison. Free, no sign-up.
Calculate inflation impact on your purchasing power.