What $1,000 is worth after 10 years of 8% inflation
After 10 years of 8% inflation, what $1,000 buys today will cost $2,159, and $1,000 held in cash will buy only $463 worth of today's goods, a loss of 53.68%.
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The numbers for these inputs
| Year | Cost of the same goods | Buying power of the amount | Buying power lost |
|---|---|---|---|
| 1 | $1,080 | $926 | 7.41% |
| 2 | $1,166 | $857 | 14.27% |
| 3 | $1,260 | $794 | 20.62% |
| 4 | $1,360 | $735 | 26.5% |
| 5 | $1,469 | $681 | 31.94% |
| 6 | $1,587 | $630 | 36.98% |
| 7 | $1,714 | $583 | 41.65% |
| 8 | $1,851 | $540 | 45.97% |
| 9 | $1,999 | $500 | 49.98% |
| 10 | $2,159 | $463 | 53.68% |
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?
$2,159 at 8% a year.
What will $1,000 be worth in 10 years?
In today's buying power, $463: inflation takes away 53.68% 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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