This calculator allows you to estimate the inflation-adjusted cost of a payment. It assumes the payments are fixed (not at a variable interest rate). After you enter the payment and your estimate of inflation, it estimates the value of payments in TODAY'S DOLLARS. |
It is desirable to have your debts or payments at a fixed rate and to have your income adjusted for inflation. For example, if you owed payments of $1,000 and inflation was 10%. After a year your payments would be $909.09 in TODAY'S dollars. However, if you had an income of $1,000 adjusted for inflation, your income would be $1,100 in current (year later) dollars. |
Inflation is the amount of price increase each year. If you are paying for something with fixed payments over a long time, then inflation may help make those payments. The best example is a fixed rate 30-year mortgage. Even at a low inflation rate of 2 or 3%, the buying power of the payments at the end of 30 years will be much less than the buying power of the payments made in year one. This screen shows the amount of TODAY's dollars required to pay a fixed amount. Fixed amount means an amount not adjusted for inflation or varying interest rates. For example, if you had a payment of $2,000 due in one year and inflation was 9%, the amount required to pay the bill in TODAY's dollars would be: $2,000 / (1.09)^ 1 = $1834.86 [where the ^ means raised to a power.] In two years the amount would be: $2,000 / (1.09)^2 = $1683.36 In three years the amount would be: $2,000 / (1.09)^3 = $1544.37 and so forth. |