Inflation
Inflation is the sustained, generalized rise in prices, which reduces the purchasing power of money that isn't earning any return, over time.
Inflation measures how much prices for goods and services rise, on average, in an economy over a given period. With 3% annual inflation, something that costs €100 today will cost roughly €103 in a year; if your savings sit without earning any interest, that same money will buy fewer things over time, even though the number in the account doesn't change.
That's why, when planning long-term savings (for retirement, a FIRE goal, or simply a savings goal), it's worth distinguishing between nominal return (the one a product advertises) and real return (the nominal return minus inflation): an investment that returns 4% with 3% inflation is only increasing real purchasing power by roughly 1% a year. Inflation is officially measured through indices like the CPI, and its exact level varies by country.
Other calculators you may find useful
If you found this calculator useful, you might also want to check out:
Frequently asked questions
What is inflation in simple terms?
It's the generalized rise in prices in an economy over time, which means the same amount of money buys fewer things in the future than it does today.
What's the difference between nominal and real return?
Nominal return is the figure a financial product advertises without deducting anything; real return is that same figure minus inflation for the period, reflecting the actual gain (or loss) in purchasing power.
How is inflation officially measured?
Through price indices (like the CPI), which track the cost of a representative basket of goods and services over time. The methodology and exact level vary by country.