Inflation calculator

Inflation compounds like interest, just working against you. To find a future cost, the calculator grows the amount by the annual rate once a year for the number of years you set. To find what a future sum is worth today, it does the same in reverse, dividing by that compounded factor to strip the inflation back out.

The two answers are two sides of the same coin. A basket costing more later and a fixed sum buying less later are the same fact told from different ends, which is why a savings or pension projection only means something once you have looked at it in today’s money as well.

On its own, a number in today's money is trivia. It becomes a decision when you attach it to something you actually hold, because inflation does not push everything the same way, and two of the things in a typical household move in opposite directions.

Cash is the one people expect. Money set aside for something years away loses buying power quietly, while the balance never falls, so a long-dated savings target set in today's prices is usually set too low. The fix is to price the target in the year you will spend it rather than in the year you typed it, which is what the “future cost” side of this calculator is for. That matters most where the thing you are saving for is itself a price that moves, such as a house or a wedding venue.

Long fixed debt goes the other way, and this is the asymmetry worth understanding. A fixed monthly payment stays the same in pounds while everything around it gets more expensive, so its weight falls year after year in real terms. That is not an argument for borrowing more. It is the reason a long fixed-rate mortgage and a long cash balance behave so differently over the same decade, and why treating both as “money in the plan” without adjusting either produces a misleading picture.

Then the number closest to home. A pay rise below the inflation rate is a cut in what you can buy, and the calculator answers it directly: put your salary in, use your pay rise as the rate, and compare against the same salary at the inflation rate instead. Two or three years of that gap compound in exactly the way a savings pot does, which is the point made at length in what does a pay rise actually change.

One caution on the rate itself. Your own inflation rate is not the headline one. A household whose spending is mostly rent, childcare and energy experiences something quite different from a household whose spending is mostly a fixed mortgage payment. Rather than hunting for the correct figure, run the calculator at a low rate and a high one and see whether the decision changes. If it does not, the rate was never the deciding factor. If it does, you now know which assumption your plan is resting on.

The limitation is that this converts one figure at a time, and a household is not one figure. The salary, the bills, the savings and the mortgage are all being pushed by the same prices at once, in different directions, and the net effect on what you can actually afford in five years is the thing worth seeing. CrestCast shows the whole forecast in real terms as standard, so the cashflow and net worth you are reading are already in today's money rather than a headline number you have to deflate yourself.