FreeTools Labs Glossary
Inflation and purchasing power
Learn how inflation changes prices and purchasing power over time, and why nominal and real values need to be distinguished.
Relevant tool
Inflation calculator
Calculate future money need and purchasing power loss.
Open Inflation calculator →The calculator applies one user-entered constant annual inflation rate to an amount and a period. It shows the mathematical relationship between price development and purchasing power, not an inflation forecast.
What the model calculates
The calculator applies one user-entered constant annual inflation rate to an amount and a period. It shows the mathematical relationship between price development and purchasing power, not an inflation forecast.
Inputs and available paths
It calculates future price, purchasing power in today’s money, the absolute loss of purchasing power and the cumulative price change. Periods may contain decimal years; valid periods are greater than zero and at most 100 years.
Calculation model
Inflation compounds: each period builds on the preceding price level. The inverse purchasing-power value divides by the same cumulative factor, so it is not obtained by simply subtracting the annual rate once per year.
Implemented relation
Future price = amount × (1 + rate ÷ 100)^years; purchasing power today = amount ÷ (1 + rate ÷ 100)^years.How the paths work
The timeline represents the entered constant-rate model and is capped at 55 visual points. Its endpoints and totals follow the full entered period even when the displayed timeline contains fewer points.
Checked example
The example keeps amount, rate and years fixed so the displayed price increase and real purchasing-power loss can be reproduced directly by the service.
€1,000 at 3% for 10 years: factor 1.343916; future price €1,343.92, purchasing power in today’s money €744.09, loss €255.91 (25.59%).
Assumptions, display and interpretation
The rate is finite and may be negative, zero or positive within the implemented range. Results are raw mathematical values; display rounding does not change the compounded calculation.
Scope and limits
No historical price index, country selection, basket of goods, salary development, taxes, investment return or future economic path is included. The output is not an economic or investment recommendation.