Same dollars, different buying power
Distinguish a future price from the purchasing power of an unchanged dollar balance.
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USD examples. Calculator settings do not convert this article’s amounts.
Inflation and purchasing power describe related sides of a price change. If a basket of goods costs more, the same dollar balance buys less of it. The Bureau of Labor Statistics explains purchasing power using price-index ratios. Our calculator instead explores a constant hypothetical future rate; it does not forecast the CPI.
Follow one basket
Imagine a basket that costs $100 today and assume prices rise exactly 3% each year for ten years. Its future cost is $100 multiplied by 1.03 ten times: $134.39 after rounding.
Now keep a fixed $100 instead. Divide by the same growth factor. In ten years, that unchanged sum has $74.41 of buying power measured in today’s dollars.
$134.39 is a future price in future dollars. $74.41 is a future purchasing-power comparison expressed in today’s dollars. They answer different questions.
No dollars disappear from the unchanged balance in this example. Its nominal amount stays $100. The picture changes because prices change.
Avoid mixing units
Comparing a future balance with a current price can hide the effect of changing prices. The inflation calculator labels each result with its unit: today’s price, future cost, or buying power in today’s dollars. Its table lets you follow both calculations year by year.
A 0% assumption or a zero-year duration leaves both results equal to the starting amount. The current version accepts nonnegative rates only, so it does not model deflation.
A scenario is not a reading
The rate you enter is hypothetical. Different goods and services can change price differently, and your own spending mix may not match a broad index. For historical comparisons, the BLS describes its inflation calculator’s CPI methodology.
This picture also excludes interest, taxes and fees. If you explore a future savings balance in the compound growth calculator, remember that the displayed balance is nominal. Understanding its buying power is a separate question.