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Inflation Calculator

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What Is an Inflation Calculator?

An inflation calculator calculates the effects of inflation on the cost of a specific category of goods or services.

Inflation is defined as the increase in the price of a basket of goods and services. It is usually calculated for a particular product, sector, or the economy as a whole. It indicates the degree to which the purchasing power of the rupee may fall.

Inflation is usually calculated in two forms:

  • Consumer price index (CPI), i.e. change in price levels at the retail level experienced by the end consumer.
  • Wholesale price index (WPI), i.e. change in price levels at the wholesale level.

An inflation calculator is a free tool that is used to understand the difference in the cost of a good or service today compared to a few years later. It helps in financial planning for both the long and short term.

How Does an Inflation Calculator Work?

The inflation calculator uses a compound interest formula to calculate the future cost of a set of goods and services based on their current cost and the assumed rate of inflation. You simply have to visit the Angel One inflation calculator page online and enter the required details to find out the potential future cost.

What Is the Inflation Calculator Formula?

The rate of inflation can be calculated using either CPI or WPI. In case of CPI, the formula would be:

CPI= Cost of goods in current year / Cost of goods in the base year * 100

The following is the inflation calculator formula used to calculate the future cost of a product or service:

Future Cost = Current Cost(1+i)^t

i = Rate of inflation

t = Number of years over which the inflation is calculated

How to Use the Inflation Calculator Online?

In order to use the inflation calculator online, simply visit the Angel One inflation calculator page. Then enter the following values:

  1. Current cost
  2. Rate of inflation
  3. Time period

The calculator will automatically give you the future cost of the product(s), indicating the increase in the cost of the product.

For example, if a product costs Rs. 90,000 today. Assume an annual inflation rate of 4% for the next 5 years. To calculate the future cost of the product:

  1. Enter current cost as Rs. 90,000
  2. Enter the inflation rate as 4%
  3. Enter the time period as 5 years

The online inflation calculator will give the future cost of the product as Rs. 1,09,499, indicating an increase in the cost by Rs. 19,499 over 5 years.

Benefits of Using an Inflation Calculator

  1. An inflation calculator helps you calculate a product's probable future cost compared to its present cost. It will help you make better financial decisions as you can prioritise your consumptions and investments based on their cost.
  2. It is absolutely free to use as many times as you want to.
  3. It is completely error-free, which may not be the case if you do all the calculations manually.
  4. You can use the calculator from anywhere, anytime, as long as you have a device with an internet connection.

Since it is free, easy to use and accurate, it can be used to calculate the future cost of multiple products in a matter of minutes. This will help you compare various consumption levels, especially future ones.

How Does Inflation Impact Your Savings?

Suppose you have Rs. 10 lakh as savings in a bank account that gives you a 2% interest rate. However, the inflation rate stays at 8% annually for the next 5 years. Therefore, the real value of your savings falls by 6% every year.

This is because the basket of goods that Rs. 10 lakh can buy today will require Rs. 14,69,328 at the end of 5 years. At a 2% growth rate, you will have only Rs. 11,04,080 at the same time 5 years later. Therefore, 5 years later, your purchasing power will only be around 75.14% of what it is today under these circumstances.

Therefore, it is clear that inflation causes a fall in the purchasing power of your savings unless you park your savings in investments that give a rate of interest higher than the rate of inflation.

How to Overcome the Impact of Inflation?

Overcoming the negative impact of inflation requires careful financial planning, including choosing the right investments.

In order to combat the negative effects of inflation on your purchasing power, you may take the following steps:

  1. Try to find a rough estimate of what the level of inflation is going to be in the next few years.
  2. Then, create a portfolio of investments that have an expected rate of return that is higher than the inflation rate in the same period.
  3. This involves making sure that not only the rates of interest received are high enough, but also the level of risk is low enough to minimise the downside.
  4. The portfolio may thus be diversified into a range of investments in stocks, mutual funds, debt, gold, etc.

Before investing in high returns instruments, make sure that you have done adequate research on them. Also, choose a trusted broker who can aid you in your investment journey.

Inflation Calculator FAQs

What is the inflation calculator?

The Angel One online inflation calculator helps you to calculate the future cost of a set of goods and services by entering the current cost, the rate of inflation, and the time period under consideration.

How to use the inflation calculator online?

Simply visit the inflation calculator on the Angel One website and enter the current cost of the goods and services, the rate of inflation and the time period that you wish to calculate the inflation. The calculator will automatically give you the future cost.

What is the inflation formula?

The inflation formula when using the Consumer Price Index or CPI is:

CPI = Cost of goods in current year / Cost of goods in the base year * 100

The effect of this inflation overtime on the future cost of goods can be calculated by the formula:

Future Cost = Current Cost (1+inflation rate)^time period

Is the inflation calculator free to use?

Yes, the inflation calculator on the Angel One website is absolutely free to use. You only need a device with an internet connection to visit the website and access the tool.

What is zero inflation?

Zero inflation occurs when the price of goods and services remains the same in a sector or the economy. However, this may not necessarily be a good thing for the economy as it may discourage production.

What is price inflation?

Price inflation refers to the rise in the price of a set of goods and services over a particular period of time in the economy.

What are real interest rates?

Real interest rates measure the rate of return generated by the interest while accounting for the impact of inflation. The real interest rate is obtained by subtracting the inflation rate from the nominal interest rate (which is the interest rate charged on paper).

What is deflation?

Deflation occurs when the prices of goods and services in an economy or sector decrease over time, leading to an increase in the consumer's purchasing power.

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