Inflation Impact Calculator
See how inflation erodes purchasing power and the real value of money over time.
What this calculator does
This calculator shows what inflation does to the purchasing power of a fixed sum over time. Enter an amount, an assumed annual inflation rate, and a number of years, and it returns the real value in today's pounds, the percentage of purchasing power lost, and the cumulative inflation across the period.
It is deliberately narrow. No investment return is applied, no contributions, no interest — just the erosion. That isolation is the point: seeing what happens to money that simply sits is the most direct argument there is for not letting money simply sit.
When to use it
Use it whenever a future figure needs translating into today's terms. Checking whether a level annuity will still cover your bills in fifteen years, seeing what a £500,000 pension pot really represents in twenty, or deciding whether a large cash holding is genuinely as safe as it feels.
It also settles pay conversations. If your salary rose 2 percent while CPI ran at 3, you took a real pay cut, and this quantifies it. And it is the right first step before setting any long-horizon savings target, since a goal fixed in today's pounds becomes quietly inadequate the longer it stays fixed.
Understanding the inputs
Current value is the sum whose real-terms worth you want to test over time — money sitting in a savings account, a fixed pension in payment, a deposit you are building, or your current salary.
The inflation rate does all the work, so choose it consciously. The Bank of England target is 2 percent, the long-run UK average is nearer 3, and 2.5 to 3 percent is a reasonable planning range. If you are modelling something linked to RPI, such as an index-linked gilt or certain rail fares, add roughly a percentage point. Years is the horizon, and the effect compounds, so the second decade always costs more than the first.
How is this calculated?
Future purchasing power = Amount / (1 + inflation)^years. Cumulative inflation = (1 + rate)^years − 1.
A worked example
Take £40,000 in cash with inflation at 3 percent. After fifteen years the statement still reads £40,000 but it buys roughly what £25,700 buys today — about 36 percent of its purchasing power gone.
Extend to twenty-five years and the real value falls to around £19,100, a loss of 52 percent. Put another way, prices will have roughly doubled. This is the calculation that makes a level annuity uncomfortable to look at: a fixed £20,000 a year at retirement is worth about £9,600 in today's money by year twenty-five, which is why escalating annuities cost considerably more to buy.
Limitations and assumptions
The calculator applies one constant inflation rate across the whole period, which never happens. UK CPI ranged from slightly negative in 2015 to over 11 percent in late 2022 within a single decade. Treat the output as a planning estimate and run a high and a low case rather than a single central figure.
It also follows headline CPI logic, which may not match your own spending. Energy, food, and housing costs have moved very differently from the average in recent years. And no investment return is applied — this is deliberately the do-nothing case. To see whether an investment stays ahead of inflation, work with a real return: your nominal rate minus the inflation rate.
Common Questions
- What does this calculator show?
- What a fixed sum will buy in the future, expressed in today's purchasing power. It is not that the balance shrinks — £40,000 stays £40,000 — but that the amount buys less. At 3 percent inflation over fifteen years, £40,000 buys roughly what £25,700 buys today.
- What inflation rate should I use?
- The Bank of England targets 2 percent CPI. The long-run UK average sits nearer 3 percent, and 2.5 to 3 percent is a sensible planning range. Recent history should curb any confidence in one number: CPI peaked above 11 percent in October 2022 and was negative briefly in 2015.
- What is the difference between CPI and RPI?
- RPI is an older measure that includes mortgage interest and uses a different averaging formula, and it typically runs around one percentage point above CPI. It is no longer a national statistic but still governs index-linked gilts, some rail fares, and older pension increases. From 2030 RPI is due to be aligned with CPIH.
- How long does it take for prices to double?
- Divide 72 by the inflation rate. At 3 percent prices double in roughly 24 years — precisely 23.4. At 2 percent it takes 36 years, at 6 percent just 12. That doubling time is the clearest way to see why a level annuity with no escalation is a slowly shrinking income.
- Does a savings account protect me from inflation?
- Only if the rate beats inflation after tax. A 4.5 percent account with 3 percent inflation earns about 1.5 percent real before tax, and less once interest above your Personal Savings Allowance is taxed. Through 2022 and 2023 savings rates sat far below inflation and cash lost purchasing power every month.
- What actually protects against inflation?
- Historically equities and property over long periods, since company revenues and rents tend to rise with prices. Index-linked gilts uprate their coupon and redemption value with RPI directly. None of these is guaranteed — index-linked gilts lost heavily in 2022 as real yields rose — and all can fall over shorter horizons.
- Is the State Pension inflation-protected?
- Yes, through the triple lock, which raises it by the highest of CPI inflation, average earnings growth, or 2.5 percent. Private pensions vary considerably: some defined benefit schemes index by CPI capped at 2.5 or 5 percent, while a level annuity has no increase at all and loses purchasing power every year.
- How should I adjust a long-term savings goal?
- Inflate the target before you start saving toward it. A £30,000 house deposit needed in five years at 3 percent inflation is really a £35,000 goal, and house prices have historically outrun general inflation anyway. The alternative is to work in real terms — subtract inflation from your expected return and keep the target in today's pounds.
- Does inflation affect everyone equally?
- No. CPI is a basket average, and your personal rate depends on what you buy. The 2022 episode was driven heavily by energy and food, which fall hardest on lower-income households where those items take a larger share of spending. Pensioners with high heating costs faced an effective rate well above the headline.