Inflation is the decline of purchasing power over time. At 3% annual inflation, $100 today will only buy $97 worth of goods next year.
Future Purchasing Power = Current Amount ÷ (1 + Inflation Rate)^Years
Example: $100,000 at 3% inflation over 20 years = $100,000 ÷ 1.03^20 ≈ $55,368
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. At 3% inflation, what costs $100 today will cost $103 next year.
Formula: Future Purchasing Power = Current Amount ÷ (1 + Inflation Rate)^Years. $100,000 at 3% over 20 years has the purchasing power of about $55,368 today.
The US Federal Reserve targets 2% annual inflation. Historically, US inflation has averaged around 3% per year. Use the rate that best matches your country and time period.
Investing in assets that historically outpace inflation — such as stocks, real estate, and inflation-protected securities — is the primary strategy. Cash savings lose value over time when inflation exceeds interest rates.