What $10,000 is worth after 10 years of 2% inflation
After 10 years of 2% inflation, what $10,000 buys today will cost $12,190, and $10,000 held in cash will buy only $8,203 worth of today's goods, a loss of 17.97%.
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The numbers for these inputs
| Year | Cost of the same goods | Buying power of the amount | Buying power lost |
|---|---|---|---|
| 1 | $10,200 | $9,804 | 1.96% |
| 2 | $10,404 | $9,612 | 3.88% |
| 3 | $10,612 | $9,423 | 5.77% |
| 4 | $10,824 | $9,238 | 7.62% |
| 5 | $11,041 | $9,057 | 9.43% |
| 6 | $11,262 | $8,880 | 11.2% |
| 7 | $11,487 | $8,706 | 12.94% |
| 8 | $11,717 | $8,535 | 14.65% |
| 9 | $11,951 | $8,368 | 16.32% |
| 10 | $12,190 | $8,203 | 17.97% |
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 $10,000 of goods cost in 10 years?
$12,190 at 2% a year.
What will $10,000 be worth in 10 years?
In today's buying power, $8,203: inflation takes away 17.97% 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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