Purchasing Power Calculator
How much is your money really worth? Calculate the eroding effect of inflation on your savings.
Real Value After 10 Years
▼ 44.2% Lost to Inflation
Value Eroded
₹44,161
Need to Match Today's Value
₹1,79,085
The Shrinking Value
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What is Purchasing Power?
Purchasing power is the real value of money—how much goods and services one unit of currency can buy. It's the most important concept in personal finance that most people ignore. While your bank balance stays the same, its real value erodes silently every year due to inflation.
Consider this: ₹100 in 2014 could buy what costs ₹180 today. That's a 44% loss in purchasing power in just 10 years. If you kept that ₹100 in a savings account earning 4%, you'd have ₹148—still less than what you need to buy the same goods.
This calculator helps you visualize how inflation silently steals your wealth over time, and how much you actually need to maintain your standard of living.
Average Inflation Rates by Country
| Country/Region | Avg. Inflation | Years to Lose Half | Notes |
|---|---|---|---|
| 🇺🇸 United States | 2-3% | 24-36 years | Fed target 2% |
| 🇪🇺 Eurozone | 2% | 36 years | ECB target 2% |
| 🇬🇧 United Kingdom | 3-4% | 18-24 years | BoE target 2% |
| 🇮🇳 India | 5-6% | 12-14 years | RBI target 4% (±2%) |
| 🇧🇷 Brazil | 5-8% | 9-14 years | Volatile EM |
| 🇹🇷 Turkey | 40-80% | <2 years | Hyperinflation |
* "Years to Lose Half" calculated using Rule of 72 (72 ÷ inflation rate)
Key Concepts
The Inflation Tax
Inflation is an invisible tax on your savings. Unlike income tax, you don't see it on a statement—but it takes a cut of your wealth every year.
Rule of 72
Divide 72 by the inflation rate to get years to lose half. At 6%: 72÷6 = 12 years. At 8%: just 9 years. Simple mental math for planning.
Real Return
Real Return = Nominal Return - Inflation. A 7% FD with 6% inflation gives only 1% real return. Your purchasing power barely grows.
Inflation Hedge
Equities (10-12%), Real Estate, Gold, and Inflation-Linked Bonds historically beat inflation. Cash and savings accounts do not.
Calculator Features
Frequently Asked Questions
What is purchasing power?
Purchasing power is the amount of goods and services that one unit of currency can buy. It measures the real value of money. As prices rise due to inflation, purchasing power decreases—meaning the same ₹100 or $100 buys fewer goods over time.
How does inflation erode purchasing power?
Inflation is the general increase in prices over time. If inflation is 6%, goods that cost ₹100 today will cost ₹106 next year. Your ₹100 bill buys less. Over 10 years at 6% inflation, ₹100 loses about 44% of its purchasing power—it will only buy what ₹56 buys today.
What is the Rule of 72?
The Rule of 72 is a quick formula to estimate how long it takes for money to lose half its value (or double, for investments). Divide 72 by the inflation rate: at 6% inflation, 72 ÷ 6 = 12 years to lose half. At 4%, it takes 18 years. It's a simple mental math trick for financial planning.
What is the average inflation rate in India?
India's average inflation (CPI) has been around 5-6% over the past decade. However, it fluctuates—it was over 7% in 2022-23. For conservative financial planning, many advisors use 6% as a baseline assumption for India.
How can I protect my money from inflation?
To beat inflation, invest in assets that historically outpace it: (1) Equity/Stocks (10-12% long-term returns), (2) Real Estate (appreciates over time), (3) Gold (traditional hedge), (4) Inflation-Linked Bonds (like TIPS in US, or Sovereign Gold Bonds in India). Avoid keeping large cash in savings accounts that pay 3-4%.
Is keeping money in a savings account safe from inflation?
No. While savings accounts are 'safe' from market risk, they typically pay 3-4% interest. If inflation is 6%, your real return is negative (-2%). You're actually losing purchasing power every year. Savings accounts are good for emergency funds, not long-term wealth building.
What is 'real return' vs 'nominal return'?
Nominal return is the stated return on an investment (e.g., 10% FD interest). Real return is nominal return minus inflation. If your FD gives 7% and inflation is 6%, your real return is only 1%. Real return is what actually increases your purchasing power.
How much will ₹1 lakh be worth in 20 years?
At 6% inflation, ₹1 lakh today will have the purchasing power of about ₹31,000 in 20 years (69% erosion). To maintain today's purchasing power, you would need about ₹3.2 lakhs in 20 years. This is why retirement planning requires accounting for inflation.
Why do emerging markets have higher inflation?
Emerging markets like India often have higher inflation due to: (1) Faster economic growth driving demand, (2) Supply chain inefficiencies, (3) Currency volatility, (4) Food and fuel price sensitivity. Developed economies have lower inflation (2-3%) due to stable institutions and mature supply chains.
How accurate is this calculator?
This calculator uses compound inflation formula: Future Value = Present Value ÷ (1 + inflation)^years. It assumes constant inflation rate. Real inflation varies year to year. Use this for planning estimates. For precise projections, consider variable inflation scenarios.