What $10,000 is worth after 10 years of 4% inflation
After 10 years of 4% inflation, what $10,000 buys today will cost $14,802, and $10,000 held in cash will buy only $6,756 worth of today's goods, a loss of 32.44%.
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The numbers for these inputs
| Year | Cost of the same goods | Buying power of the amount | Buying power lost |
|---|---|---|---|
| 1 | $10,400 | $9,615 | 3.85% |
| 2 | $10,816 | $9,246 | 7.54% |
| 3 | $11,249 | $8,890 | 11.1% |
| 4 | $11,699 | $8,548 | 14.52% |
| 5 | $12,167 | $8,219 | 17.81% |
| 6 | $12,653 | $7,903 | 20.97% |
| 7 | $13,159 | $7,599 | 24.01% |
| 8 | $13,686 | $7,307 | 26.93% |
| 9 | $14,233 | $7,026 | 29.74% |
| 10 | $14,802 | $6,756 | 32.44% |
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?
$14,802 at 4% a year.
What will $10,000 be worth in 10 years?
In today's buying power, $6,756: inflation takes away 32.44% 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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