Last updated 23 August 2026
Two views of the same thing
Future cost answers "how much will I need to spend later to buy what this amount buys today" — the price simply rises. Purchasing power flips the question: "how much would today's amount actually be worth, in today's terms, if I waited to spend it" — the same erosion, described as a shrinking value instead of a rising price.
Common questions
What inflation rate should I use?
There's no single right answer — it depends on your country and the period. Many economies target roughly 2% long-term, though actual rates vary a lot year to year. Use your central bank's target or recent average as a starting point.
What's the difference between the two results?
Future cost answers "how much will the same goods cost later." Purchasing power answers "how much would today's amount actually buy, valued in today's terms, if you waited to spend it." They're two ways of describing the same erosion of value.
Is this the same as compound interest?
Mathematically yes, the same exponential formula — but here it's working against your money's value instead of growing it. Investment returns need to beat the inflation rate just to maintain real purchasing power, not just show a positive number.