Money & everyday · 3 min read
Inflation and Purchasing Power: What 3% a Year Really Does
Two formulas
- Future price = price × (1 + i)ⁿ
- Purchasing power = amount ÷ (1 + i)ⁿ
What 100 buys after 10 years at 3% inflation
Order-of-operations steps 2 steps
Start: 100 ÷ 1.03^10
- Exponent
1.03^10 = 1.343916379→ 100 ÷ 1.343916379 - Divide
100 ÷ 1.343916379 = 74.40939149→ 74.40939149
The table
| Years | 2% inflation | 3% inflation | 5% inflation |
|---|---|---|---|
| 5 | 90.57 | 86.26 | 78.35 |
| 10 | 82.03 | 74.41 | 61.39 |
| 20 | 67.3 | 55.37 | 37.69 |
| 30 | 55.21 | 41.2 | 23.14 |
Each cell shows what 100 today would be worth in future purchasing power.
Doubling time
Prices double in about 72 ÷ 3 = 24 years at 3% (exact 23.4). See the rule of 72.
Real vs nominal growth
If savings grow 5% while prices rise 3%, the real gain is about (1.05 ÷ 1.03) − 1 = 1.94%. Explore the compounding behind it in compound interest.
Frequently asked questions
What is purchasing power?
How much goods and services a given amount of money can buy.
Is the table a forecast?
No. It is arithmetic for assumed constant rates; real inflation varies.
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