Inflation Calculator
This inflation calculator tool helps you to understand how inflation erodes the buying power of money over time. It is a generic calculator and does not constitute financial advice. If you wish to discuss your specific circumstances and the impact of inflation on your savings, please contact us.
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UK Inflation Calculator FAQs
Are inflation calculators accurate?
This inflation calculator is very flexible to allow any measure of inflation to be inputted. For example, users might like to look at how the consumer price index (CPI) or retail price index (RPI) impacts on prices, or any other average inflation rate, or average inflation rate formula.
What is the consumer price index (CPI)?
Consumer price index tracking began in 1996. It tracks the prices of a selected basket of goods and services as a measure of consumer prices and inflation. This data feeds into the inflation rate and official inflation data against which the Bank of England sets interest rates. Included within the basket of goods and services are a wide range of price data including; alcohol and tobacco products, clothing and footwear, furniture and household goods, restaurants and hotels, transport and recreation and culture.
Can I use the Inflation calculator for retirement?
The inflation rate is often described as the hidden tax. In retirement the average prices of goods and services will gradually increase and so the potential buying power of your pension savings can decrease if not carefully thought about. For example, £1,000 of buying power now at an inflation rate of 3% per annum reduces the buying power equivalence to £749 in 10 years time.
Over longer periods of relatively low inflation or short periods of a high inflation rate the purchasing power of your money can be seriously impacted. This is why most pensioners and savers choose to invest as a way to try to beat inflation to preserve the purchasing power of their money in real terms. Beating inflation over long periods maintains the purchasing power of your pension and savings.
What is the inflation rate formula used?
There are lots of different ways to calculate inflation rate. Various measures are used by the government including consumer price index, core inflation, retail price index to give an overall picture.
What is the average inflation rate in the UK?
The Bank of England has long had an inflation target of 2% in the UK. At the time of writing, the inflation rate is running high and is at 9.6% in the 12 months to October 2022. In response to high inflation the Bank of England increases interest rates, which squeezes household spending by increasing mortgage costs and other borrowing costs. This increasing in housing costs reduces demand on goods and services purchased, which then lowers prices and reduces inflation rates.
Is this calculated using average prices?
Yes, the average prices of a wide range of goods and services is used in setting the price index and calculating inflation. Consumer price index, retail price index, and any other price index which includes housing costs and other goods and services can be used as a guide to inflation data.
Did you find this calculator helpful? Why not try one of the other financial calculators we have available: Income and Expenditure Calculator, Inheritance Tax Calculator, or Investment Calculator
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