What $1,000 is worth after 10 years of 3% inflation
After 10 years of 3% inflation, what $1,000 buys today will cost $1,344, and $1,000 held in cash will buy only $744 worth of today's goods, a loss of 25.59%.
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The numbers for these inputs
| Year | Cost of the same goods | Buying power of the amount | Buying power lost |
|---|---|---|---|
| 1 | $1,030 | $971 | 2.91% |
| 2 | $1,061 | $943 | 5.74% |
| 3 | $1,093 | $915 | 8.49% |
| 4 | $1,126 | $888 | 11.15% |
| 5 | $1,159 | $863 | 13.74% |
| 6 | $1,194 | $837 | 16.25% |
| 7 | $1,230 | $813 | 18.69% |
| 8 | $1,267 | $789 | 21.06% |
| 9 | $1,305 | $766 | 23.36% |
| 10 | $1,344 | $744 | 25.59% |
How it works
Inflation compounds like interest. If prices rise by a steady rate each year, goods that cost one amount today cost amount x (1 + rate)^years after that many years.
The other side of it is buying power: money held in cash for that long buys only amount / (1 + rate)^years of today's goods.
Real inflation changes from year to year and differs between goods, so a single steady rate is an illustration. Use it to see the size of the effect, not to predict a price.
Common mistakes
- Ignoring inflation when judging a savings rate: a 3% account in a 3% inflation year gains nothing in real terms.
- Using the average inflation of one country for a price in another.
- Assuming every price rises at the headline rate; housing, food and electronics move differently.
Questions
How much will $1,000 of goods cost in 10 years?
$1,344 at 3% a year.
What will $1,000 be worth in 10 years?
In today's buying power, $744: inflation takes away 25.59% of it.
What inflation rate should I use?
Many central banks aim for about 2%; use the average rate of your country over a long period rather than one recent year.
How do I protect savings from inflation?
Earn a return at or above inflation: compare the interest rate with the inflation rate, and see the compound interest calculator for the effect of growth.
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