Calculate how inflation affects the future cost of an item and the purchasing power of your money.
An inflation calculator shows how the cost of goods and services changes over time due to inflation, and how this erodes the purchasing power of a fixed amount of money. It answers two related questions: "what will today's cost look like in the future?" and "what would today's amount be worth in terms of what it can actually buy, in the future?"
The future equivalent cost shows how much more an item would cost after years of inflation, by compounding the current amount at the inflation rate. The future purchasing power shows the reverse — how much of today's purchasing power a fixed amount of money would retain after the same period, by dividing instead of multiplying.
Formula: Future Equivalent Cost = Current Amount × (1 + Inflation Rate)Years. Future Purchasing Power = Current Amount ÷ (1 + Inflation Rate)Years.
Example: At a 3% annual inflation rate (example rate — enter a rate based on your expectations) over 10 years, something costing £1,000 today would cost roughly £1,340 in 10 years — an increase of about £340. Equivalently, £1,000 today would have the purchasing power of only about £744 in 10 years' time, in terms of what it could buy. (Note: this example is for illustration purposes only — actual future inflation is uncertain.)
UK inflation is most commonly measured by the Consumer Prices Index (CPI), tracked by the Office for National Statistics, with the Bank of England targeting 2% CPI inflation over the medium term — though actual inflation has been both above and below this target at various times. The Retail Prices Index (RPI), an older measure, tends to run higher than CPI and is still used for some purposes (such as certain index-linked bonds and some rail fares), though it's no longer used as the government's primary inflation measure. Inflation matters for almost every area of personal finance: it erodes the real value of cash savings that don't earn enough interest to keep pace, it affects the real (inflation-adjusted) return on investments, and it determines how much your income needs to grow just to maintain the same standard of living. When comparing a savings rate or investment return to inflation, the difference is sometimes called the "real" rate of return — a savings account paying 3% when inflation is 3% has a real return of roughly 0%, meaning your purchasing power is roughly unchanged.
CPI (Consumer Prices Index) is the UK's main official measure of inflation and the basis for the Bank of England's 2% target. RPI (Retail Prices Index) is an older measure that uses a different calculation method and tends to produce higher figures — it's no longer the primary government measure but is still used for some specific purposes, such as certain index-linked gilts.
A nominal return is the pound amount of growth before considering inflation. A real return adjusts for inflation, showing growth in terms of purchasing power. For example, a 5% nominal return with 3% inflation gives a real return of roughly 2% — meaning your purchasing power increased by about 2%, even though the pound amount grew by 5%.
If your savings account pays less interest than the inflation rate, the purchasing power of your savings decreases over time, even though the pound amount in your account stays the same or grows. This is why comparing savings rates to inflation (rather than just looking at the rate in isolation) gives a more complete picture.
No specific rate is guaranteed — the default reflects a rate close to the Bank of England's 2% target plus some margin, used as an example. Actual UK inflation has varied considerably over time, including periods significantly above and below this level. Check recent CPI figures for a more current reference point, but remember future inflation is inherently uncertain.
No. This calculator applies a single average inflation rate to a general amount. In reality, different goods and services experience different rates of price change — for example, housing, energy, and food prices have at times risen much faster or slower than the overall CPI rate.
You can use this calculator to see how much a target retirement income (in today's terms) might need to be in pound terms by the time you retire, given an assumed inflation rate. Alternatively, many people use a "real" (inflation-adjusted) rate of return in retirement projections to express future values in today's purchasing power directly.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not constitute financial advice. The default inflation rate is a sample value and does not represent a forecast of future UK inflation, which is inherently uncertain and can vary significantly from any single assumption. Always consult a qualified financial adviser for guidance on financial planning that takes inflation into account.