A Useful Inflation Calculator

Jul 23, 2008: 10:25 PM CST

The MoneyChimp website offers a simple inflation calculator and brief description of the Federal Reserve’s role in combating inflation – the site is worth a look as well.

Inflation is the hidden burden that decreases buying power over time; as such, it’s important to know what the current rate of inflation is and how it will affect your long-term portfolio and investments.

Through MoneyChimp’s “Inflation Calculator,” you can Input your Current Principle (money now), Years to grow the investment, Growth rate (don’t get carried away here… 7% – 10% on average is more than reasonable), and finally the inflation rate (which is close to 3% per year) – with all these inputs, the calculator will tell you the Future Value of your investment, as well as what the Buying Power is in today’s dollars.

In addition to playing out different scenarios with your finances, you can view a slider tab of historical annual inflation rates.

For example, from 1970 – 1980, the annual rate of inflation was 8%.

From 2000 – 2008, the annual rate was 2.7%.

For 2007, the rate was 4.1%.  I am almost certain the rate of inflation for 2008 will be close to, if not greater than that number.

Finally, the page gives you a little background detail on exactly what inflation is and how the Federal Reserve measures it and tries to combat it.

Hint:  It has to do with Housing, Apparel, Medical Care and other expenses, and separates Food and Energy into a separate category for study.

See what interesting results you can find as you deepen your knowlede of long-term investing.

5 Comments

5 Responses to “A Useful Inflation Calculator”

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