Inflation Calculator

Inflation is linked to rising prices and decreased purchase power of the individual. This makes Inflation a crucial factor to note. Every individual needs to know the effect of Inflation on his/her purchase power - making it easier to manage finances in the future.
It is a tedious process to calculate how much money you will need in the future at the growing rate of Inflation. But you can use the Inflation Calculator to do so.

What is the Inflation Calculator?

The inflation calculator is an online tool that can be used to calculate the effect of Inflation on your purchasing power. It will primarily indicate the worth of a quantity of money after a certain period of time.

What is Inflation, and How Does it Affect Your Savings?

Inflation is the general increase in the price of goods and services in an economy over a period of time. It is mainly thought of as the decrease in purchase power over time.
Inflation has the tendency to erode the value of your savings, especially your fixed payout investments since they can't keep pace with the growing prices. The main ways through which Inflation could affect your savings are:

Interest Rates: Inflation will affect savings’ interest rates. This is because the interest rates on your savings will be comparatively lower than the inflation rate.

Degradation of Value: The amount deposited in savings accounts will grow at the prevailing rate - but the value would have degraded since inflation results in a price rise.

Cash: Inflation is most detrimental to cash - since cash does not grow with time. If , most of your fixed savings is primarily in cash, it can take a significant down turn.

Provided that Inflation can affect your savings, purchase power, investments, and several other financial attributes in these manners, an Inflation calculator can come to great use.

How to Overcome Inflation?

Individuals can overcome Inflation by taking some preventive measures.
In order to overcome Inflation, an individual can take the steps mentioned below:

1. Hedge Against Inflation: Inflation hedges are investments that protect individuals from the decreasing purchase power of their money. These investments are expected to maintain or even increase in value during inflation cycles. Some examples of these investments are Mutual Funds, Gold, Stocks, ETFs, and more.

2. Diversify Your Income: To manage Inflation, you will have to diversify your assets amongst cash, bonds, equities, and alternative investments. This reduces the effect of Inflation on your finances.

3. Mindful Financial Management for the Future: Steps such as using an Inflation calculator, planning ahead of time, taking cautious financial measures, diversifying your portfolio, and more can lead to better safeguarding against Inflation in the future.

How is Inflation Calculated?

Inflation is calculated through the CPI (Consumer Price Index.) CPI is the measure taken by examining the average prices from a hypothetical basket of goods and services bought by consumers. You can calculate CPI through:

CPI = (Cost of Fixed Basket of Goods & Services in the Current Year/The Cost of Fixed Basket of Goods & Services in Base Year) *100

After the calculation of CPI, Inflation is calculated with the formula:

Inflation = ((CPI x+1 – CPIx)/ CPIx))*100

The Inflation calculator works on this formula and gives you instant results.

How to Calculate Future Value?

Future value calculator
Future value (FV) is the value of an asset on a certain date in the future based on a particular growth rate. You can calculate FV through the formula:

FV = PV*(1+i)^n

PV: = Present value

i: = Interest rate

n: = Number of time periods

We can understand this with an example.

Mr. X owns assets and wants to know the value of it on a future date. The components of measurement are:

Present Value (PV): 2,50,000

Growth Rate (i): 12%

Time Period (n): 5 years

FV = 2,50,000*(1+12%)^5

Future Value = 4,40,585

Benefits of Inflation Calculator

The inflation calculator comes in useful in the below-mentioned ways:

1. Ease of Use: The calculator is user-friendly and can be used by anyone at a glance.

2. Eliminates Human Error: The calculator will give you the most accurate results (since it works with a pre-programmed algorithm), eliminating circumstances of human error.

3. Establishes Better Financial Planning: You can plan ahead with the use of the inflation calculator. You can strategize investments, spending, and savings based on economic movements.

4. It Saves Time: Manual calculations are time-consuming and tedious. The results from this calculator are given almost instantly.

5. Helps to Estimate Future Value: Through the right calculations of inflation rates, you can estimate the future value of your assets. In order to know the worth of your money or assets on a future date, you will need the accurate inflation/growth rate.

FAQs

Q1. Why do I need to use the inflation calculator?

Using an inflation calculator enables you to understand the decrease in your purchase power in the future - it helps you plan your finances based on this estimation.

Q2. What details do I need to enter in the calculator?

You will have to provide the value of the current expenses, the annual inflation rate, and the time period in years.

Q3. Is the inflation calculator charged?

The inflation calculator can be used free of cost.

Q4. What is deflation?

The inflation calculator can be used free of cost.