What a Sum of Money Was Worth
Prices in the past are not comparable to prices today without adjustment. A salary of 20,000 in 1995 or a house price from 1980 means nothing on its own, and comparing it directly to a modern figure produces the wrong conclusion in whichever direction the comparison runs.
This calculator converts an amount between years using a rate of inflation, so historical figures can be read in terms you recognise.
How to Adjust for Inflation
Two dates and a rate produce the comparison; the rate is the input that deserves thought.
- Enter the original amount and the year it applies to.
- Enter the year you want to convert into.
- Enter the average annual inflation rate for that stretch. A rate from official statistics for the specific period is far better than a general guess.
- Read the adjusted figure, which is what that sum would need to be today to have the same purchasing power.
- Treat the result as an approximation. A single average rate cannot capture a period that included both very low and very high inflation years.
Inflation Compounds Like Interest
Inflation is not additive. Three years at 5% is not 15% but 15.76%, because each year applies to the already-increased price level. Over long periods this compounding dominates: at 3% a year, prices double in roughly twenty-four years, and the rule of 72 gives that estimate in one step by dividing 72 by the rate.
That is also why relatively modest-sounding rates matter so much over a working life. Forty years at 3% multiplies prices by more than three, which means a pension calculated in today’s money will buy roughly a third of what the figure suggests unless it is inflation-linked.
What Inflation Does Over Time
How much a fixed sum loses in purchasing power at different steady rates.
| Annual rate | Prices double in | 10 years later, 1,000 buys | 25 years later |
|---|---|---|---|
| 2% | 35 years | 820 | 610 |
| 3% | 24 years | 744 | 478 |
| 5% | 14 years | 614 | 295 |
| 7% | 10 years | 508 | 184 |
| 10% | 7 years | 386 | 92 |
At 7% a year, money loses half its purchasing power in a decade. That is why holding cash for the long term carries a real cost even when the balance never falls, and why the nominal number on an account statement is not the whole picture.
Why Your Experience May Not Match the Index
Headline inflation is an average across a basket of goods weighted to typical household spending. Your own rate depends on what you actually buy: someone paying rent in a city with fast-rising housing costs experiences higher inflation than the index, while someone with a fixed mortgage and no car may experience less.
Different indices also give different answers for the same period. CPI, RPI and various harmonised measures use different baskets and methods, and long historical series are reconstructed rather than measured. For anything with a legal or contractual consequence, an index-linked payment, a rent review, the specific index named in the agreement is the one that governs.
Wages are the other half of the comparison and rarely move in step. A salary that rose 2 per cent in a year of 4 per cent inflation is a real-terms pay cut of about two points, which is why "real" wage figures are reported separately from nominal ones. Adjusting an old salary for inflation and comparing it to a current one answers a different question from comparing the nominal figures, and it is usually the question people actually meant to ask.