Calculate how inflation affects the future cost of an item and the purchasing power of your money.
This calculator shows two related effects of inflation on a sum of money: the future cost of an item that costs a given amount today (how much more it would cost after years of inflation), and the future purchasing power of that same amount of money (how much less it would buy in the future, in today's terms).
Inflation compounds the cost of goods and services over time, similar to how compound interest grows an investment. The future cost formula projects today's amount forward at the inflation rate; the purchasing power formula does the reverse, discounting a fixed amount of money backward to show how much less it would buy in the future, expressed in today's terms.
Formula: Future Equivalent Cost = Current Amount × (1 + Inflation Rate)Years. Future Purchasing Power = Current Amount ÷ (1 + Inflation Rate)Years. Total Increase = Future Equivalent Cost − Current Amount.
Example: At a 3% annual inflation rate (example rate — enter your own assumption) over 10 years, something that costs CA$1,000 today would cost about CA$1,343.92 in 10 years (an increase of roughly CA$343.92). Equivalently, CA$1,000 today would have the purchasing power of only about CA$744.09 in today's dollars after 10 years of that inflation rate - meaning prices would have risen enough that the same CA$1,000 buys noticeably less. (Note: this example is for illustration purposes only - actual inflation varies year to year and by category of spending.)
Statistics Canada measures inflation primarily through the Consumer Price Index (CPI), which tracks the average price change of a basket of goods and services purchased by Canadian households over time. The Bank of Canada has an inflation-control target of 2% (within a 1%-3% range), which it pursues primarily by adjusting its policy interest rate - though actual inflation has fluctuated above and below this target at various times, including a notable spike in 2021-2023. Inflation affects financial planning in several important ways: a fixed amount of retirement savings or a fixed pension payment buys progressively less over time unless it's indexed to inflation (some government benefits like CPP and OAS are indexed annually, while many private pensions and fixed-rate annuities may not be - see our CPP Calculator, OAS Calculator, and Pension Calculator). For long-term financial planning - retirement projections, education savings, or any goal many years away - using a "real" (inflation-adjusted) rate of return, or explicitly accounting for inflation in your target amount as this calculator does, gives a more realistic picture than using nominal figures alone.
The Bank of Canada targets 2% annual inflation (within a control range of 1% to 3%), measured by the Consumer Price Index. The Bank adjusts its policy interest rate to help keep inflation near this target, though actual inflation can deviate from the target for extended periods due to economic shocks, supply issues, or other factors.
"Future equivalent cost" projects forward - it answers "how much would this item cost in the future, given inflation?" "Future purchasing power" discounts the same amount backward - it answers "how much would this same amount of money be worth, in today's terms, after inflation erodes its value?" Both describe the same underlying erosion of money's value, viewed from two different angles.
If your retirement savings grow at a nominal rate but inflation also occurs, the real (inflation-adjusted) growth is lower than the nominal rate suggests - and a fixed dollar amount in retirement will buy less each year that inflation continues. This is why long-term retirement projections often use a "real" rate of return (nominal return minus inflation) or explicitly inflate the target amount, as this calculator helps illustrate.
Yes - CPP and OAS benefits are indexed to inflation and adjusted periodically (CPP annually, OAS quarterly) based on changes in the Consumer Price Index, which helps preserve their purchasing power over time. This is a notable advantage over some other fixed-income sources, like certain private pensions or annuities, which may not be indexed.
No - the Consumer Price Index represents an average basket of goods and services, but individual households have different spending patterns. If you spend more on categories that are rising faster than average (such as housing or food in some periods), your personal inflation experience could be higher than the headline CPI figure, and vice versa for categories rising more slowly.
There's no single right answer - using the Bank of Canada's 2% target is a common, conservative-ish long-run assumption, but some planners use slightly higher rates (e.g., 2.5%-3%) for added caution, especially for categories like healthcare or education that have sometimes outpaced general inflation. Consider running projections at a couple of different rates to see how sensitive your plan is to this assumption.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not constitute financial advice. The inflation rate used is an example only and does not represent a forecast or guarantee of future inflation - actual inflation varies over time and can differ significantly from any assumption used here. Always consult a qualified financial adviser for personalised financial planning.