What does this calculator show?

In 'Erode purchasing power' mode, you enter an amount you hold today (for example, cash savings or a pension pot) and see what it will buy in future years. Inflation steadily reduces the real value of a fixed sum. In 'Future target in today's money' mode, you enter a future amount (for example, your retirement income target) and see what that represents in today's terms. Both modes help you understand whether your savings are keeping up with the cost of living.

What inflation rate should I use?

The Bank of England's target is 2% per year. Actual UK CPI has averaged around 2.5-3% over the last decade, with a period of much higher inflation (7-11%) in 2022-2023. For long-term financial planning, 2-3% is a reasonable base case. For a more cautious plan, use 3-4%. The ONS publishes official UK CPI and RPI data if you want to use a specific historical rate.

What is the difference between CPI and RPI?

CPI (Consumer Prices Index) is the main measure of UK inflation, targeted by the Bank of England. RPI (Retail Prices Index) is an older measure that includes housing costs such as mortgage interest payments. RPI has historically run about 0.5-1% higher than CPI. Many pension increases, rail fares, and student loan interest rates are still linked to RPI, so it remains relevant for planning purposes.

How does inflation affect my pension?

Inflation is one of the biggest risks to retirement savings. If your pension pot is £300,000 and you expect to retire in 20 years, inflation at 2.5% means you will need around £490,000 in nominal terms to have the same purchasing power. This is why pension projections typically show both a nominal and a 'real terms' (inflation-adjusted) figure. Choosing investments that grow above inflation is crucial for long-term financial security.

Does inflation affect cash savings?

Yes. If you hold cash earning less interest than the inflation rate, your money loses real value every year. For example, if inflation is 3% and your savings account pays 2%, you are losing 1% of purchasing power annually. This is sometimes called a 'real negative return'. To preserve purchasing power, your savings need to earn at least as much as inflation after tax.

Inflation Calculator

See how inflation erodes purchasing power over time, or find out how much a future amount is worth in today's money.

Your details

Calculation mode

Amount today

Annual inflation rate

Bank of England target is 2%. Historical UK average ~2.5%.

Number of years

Your results

Purchasing Power of £10,000 After 20 Years

Equivalent value today

£6,103

Purchasing power lost

39.0%

Amount today: £10,000
Annual inflation rate: 2.5%
Purchasing power lost: £3,897

Breakdown

Amount today: £10,000
Annual inflation rate: 2.5%
Equivalent value in today's money after 20 years: £6,103
Purchasing power lost: £3,897 (39.0%)
Amount needed in 20 years to maintain purchasing power: £16,386

Year-by-year purchasing power

Year	Real Value	Purchasing Power Lost
1	£9,756	£244
2	£9,518	£482
3	£9,286	£714
4	£9,060	£940
5	£8,839	£1,161

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Frequently asked questions

Inflation Guide

Understanding inflation and what it means for your money

Inflation is the rate at which the general level of prices rises over time, eroding the purchasing power of money. If inflation runs at 3% per year, something that costs £100 today will cost £103 next year and £134 in ten years. For savers and investors, inflation is the silent tax that must be beaten just to stand still.

How UK inflation is measured

The UK tracks inflation primarily through two indices. The Consumer Prices Index (CPI) is the government's headline measure, used for Bank of England targets and benefit uprating. The Retail Prices Index (RPI) is an older measure that includes housing costs and typically runs 1–2 percentage points higher than CPI. A third measure, CPIH, includes owner-occupier housing costs and is now the ONS's preferred measure. Student loan interest is linked to RPI; the State Pension triple lock uses CPI.

Real vs nominal returns

A nominal return is the headline figure before adjusting for inflation. A real return accounts for inflation and shows what you actually gained in purchasing power. If your savings account pays 4% and inflation is 3%, your real return is approximately 1%. The precise formula is: real return = (1 + nominal) ÷ (1 + inflation) − 1. For long-term financial planning, always think in real returns, they tell you whether you're actually getting ahead.

How inflation erodes savings

Cash sitting in a low-interest account loses purchasing power whenever the interest rate is below inflation. At 3% inflation, £10,000 in a 0% account is worth the equivalent of just £7,374 in today's money after 10 years. Even at a 2% savings rate, real purchasing power falls. This is why long-term savings, particularly pension contributions and ISAs, are typically invested in assets like equities, which have historically outpaced inflation over time.

Wage growth vs inflation

Real wage growth, the difference between pay rises and inflation, determines whether living standards are rising or falling. When inflation outpaces wage growth (as occurred in the UK during 2022–23), workers become worse off in real terms even when receiving a nominal pay rise. The Bank of England's 2% inflation target is designed to provide price stability while leaving room for real wage growth.

How this calculator works

What it calculates: The future value of an amount in nominal (cash) terms, and its equivalent purchasing power in today's money after a given inflation rate over a number of years. Also runs in reverse: how much you need in the future to match today's purchasing power.
The maths: Future value = present value × (1 + inflation rate)^years. Present value = future value ÷ (1 + inflation rate)^years. Annual compounding.
Key assumptions: Constant inflation rate over the full period
Annual compounding
No interaction with tax or savings interest
When it may not be accurate: Inflation varies significantly year to year and differs across spending categories — housing, food, and energy often diverge from the headline CPI. A single constant rate is a simplification; actual purchasing power erosion depends on your personal spending mix.

Sources & methodology

Built and maintained by UK Money Tools, a personal finance resource (not a financial adviser). Last reviewed April 2026. Rates and thresholds come from official UK government publications.

GOV.UK · UK government legislation and guidance
HMRC · Tax rates, thresholds and official guidance

Figures are estimates only. This is not financial or tax advice. For help with your specific situation, speak to HMRC or a qualified adviser.