Inflation Calculator

What is Inflation?

Inflation is the gradual increase in the prices of goods and services over a period of time, eroding the purchase power. It means that using the same amount of money, you would only be able to buy less quantity of the goods/services you’ve purchased before. Inflation is an inseparable aspect of any economy, but high levels of inflation can be devastating eroding your savings and putting country in a financial jeopardy

How Does Inflation Affect Your Savings?

Inflation diminishes the value of your savings. For example, if you save ₹500,000 at a 6% interest rate, but inflation is 7.5%, your savings are actually losing 1.5% of their value each year. It roughly means your money is losing its value each day and ultimately diminishes your purchasing power.  It’s the main reason experienced investors analyse the effect of inflation before proceeding to make any investors.

What is an Inflation Calculator?

An inflation calculator is a tool that helps you understand the effect of inflation on your money over a course of time. It estimates the value of your money in the future. With this knowledge, you can make wise investments

How Does an Inflation Calculator Work?

Inflation Calculator works on the formula based on Consumer Price Index (CPI), which measures the average change in prices paid by customers for regular consumer goods and services

Formula for Inflation:

Inflation Rate (Percentage) = [ (CPI in Current Year - CPI in Base/Previous Year) / CPI in Base/Previous Year ] x 100

• Current Year (or Latest Period): The period for which you want to calculate the inflation rate (e.g., the latest month, quarter, or year).

• Base/Previous Year (or Earlier Period): The period you are comparing the current year’s prices to. This could be the previous month, previous quarter, or the same month/quarter of the previous year (for year-over-year inflation).

Example:

Let’s say:

• CPI in January 2024 (Previous Year) = 180
• CPI in January 2025 (Current Year) = 189

Using the inflation rate formula:

• Inflation Rate = [ (189 - 180) / 180 ] x 100
• Inflation Rate = [ 9 / 180 ] x 100
• Inflation Rate = 0.05 x 100
• Inflation Rate = 5%

This means that prices, on average, have increased by 5% from January 2024 to January 2025.

Benefits of Using an Inflation Calculator:

• Easy to Use: Inflation calculators are very user-friendly and require minimal input
• Provides Clear Insights: It helps you visualize the impact of inflation
• Facilitates Financial Planning: Information derived from the inflation calculator helps you makes informed investment decisions
• Free and Accessible: Fincover’s inflation calculator is available online for free and anyone can use it any number of times.

FAQs for Inflation Calculators:

1. What is the accuracy of inflation calculators?

While inflation calculator do provide a good estimate, they rely on historical projections. The actual inflation rate may vary, so, it is important to consider them as a guide rather than an accurate measurement

2. How often should I use an inflation calculator?

Whenever you are about to make a major investment, it is advised to check the effect of inflation on your investment using an inflation calculator.

3. Can I use an inflation calculator for different time periods?

Yes, you can use this calculator for various period allowing you to check the effect of inflation according to the period of your choice

4. Does the calculator consider different inflation rates for different goods and services?

Some calculators may offer different rates for different goods. In general, most calculator have a standard way of calculating inflation

5. What are some strategies to combat inflation?

Diversify your investment, analyze the market thoroughly before making an investment. Investing in stocks, bonds, and Mutual Funds are considered as some of the ways to beat inflation, as the returns from these instruments compensate for the inflation.