Reverse Inflation Definition The Reverse Inflation Calculator is used when you want to know today’s buying power for a future amount of money. A. Values to enter:
Future amount ($)
Expected annual inflation rate (%)
Number of years
B. Value returned:
Current buying power ($)
Purpose The most common kind of inflation calculator lets you enter a current dollar value and an inflation rate, and it will tell you the dollar amount of that value in the future. For example, you could enter your current salary and an estimate of the average annual inflation rate for the next five years, and the calculator would tell you what your salary would need to be in five years in order to maintain the same buying power that you have today. The Reverse Inflation Calculator does this in reverse: It enables you to enter the dollar amount for a future point in time and an estimate of the inflation rate for the time period between now and then, and it will tell you the current buying power in today’s dollars. Example Suppose you are expecting to receive a certain amount of money at a given future point in time, and you want to have an idea what that amount of money would be worth in today’s dollars. If you are expecting to receive $20,000 five years from now, and you have estimated an average annual inflation rate of 4.5%, you will enter the figures as follows:
Future amount ($): 20000
Inflation rate (%): 4.5
Number of years: 5
When you click the “Calculate” button, the calculator will return the answer:
Current buying power ($): $16,049.02 This means that when you receive the $20,000 five years from now, it will be the equivalent of $16,049.02 in today’s dollars (assuming your estimate of the future inflation rate is correct). Tips
Although “$” is shown as the currency unit, the calculation is valid for any currency.
If you are not sure what to enter for the inflation rate, try doing the calculation several times, using different values for the inflation rate. This will give you a range of results.
Check out the rest of our financial calculators to plan ahead for the future.
How to Calculate Reverse Inflation Let's be honest - sometimes the best reverse inflation calculator is the one that is easy to use and doesn't require us to even know what the reverse inflation formula is in the first place! But if you want to know the exact formula for calculating reverse inflation then please check out the "Formula" box above.