What "purchasing power" actually means
Inflation is the general rise in prices over time, which means the same number of pounds buys progressively less as time goes on. Enter £100,000 today, a 2.5% assumed annual inflation rate and 20 years, and this calculator shows two things: what that £100,000 will be able to buy in 20 years' time, expressed in today's terms (its purchasing power), and separately, how many actual pounds you'd need in 20 years to have the same buying power that £100,000 has today.
Why cash sitting still quietly loses value
Money that isn't earning a return at least equal to inflation is losing real value every year, even though the number printed on a bank statement never falls. This is easy to overlook because the pounds themselves don't disappear — only what they can buy shrinks. It's the single biggest reason financial guidance generally discourages leaving large sums in a non-interest-bearing current account for long periods, and it's the exact mechanism our inflation erosion calculator quantifies directly for a savings balance.
Why this matters most for long-term goals
Over short periods, inflation's effect is often small enough to ignore for practical purposes. Over decades — the kind of horizon relevant to pension planning or a long-term savings goal — the compounding effect of inflation becomes substantial, which is why serious retirement and long-term planning should always be expressed in "real" (inflation-adjusted) terms, not just the raw nominal pound figures a projection produces. Our "how much do I need to retire?" calculator builds this real-terms adjustment directly into its retirement income maths.
Why investing is often framed as an inflation hedge
One of the main reasons people invest rather than simply save in cash for long-term goals is to try to outpace inflation, since historically many investment asset classes have delivered average returns above typical inflation over long periods, even though there's no guarantee this continues in any given future period. Our investment growth calculator lets you project a return above your inflation assumption to see the potential real-terms gain, rather than just a nominal number that inflation would otherwise erode.
Choosing a sensible inflation assumption
UK inflation, as measured by the Consumer Prices Index (CPI), has varied considerably over recent decades, including periods of unusually high inflation as well as long stretches close to the Bank of England's 2% target. Rather than picking a single figure and treating it as certain, it's worth running this calculator at a couple of different assumptions — a lower, target-like rate and a higher, more cautious rate — to understand the range of outcomes you might realistically be planning around.
A worked example
Using the calculator's own defaults, £100,000 today, assumed 2.5% annual inflation, over 20 years, works out to a purchasing power of roughly £61,000 in today's terms — meaning what £100,000 can buy today would need around £163,900 in 20 years' time just to buy the same amount, purely to keep pace with prices rising at that assumed rate.
Run the same £100,000 at a higher 4% assumed inflation rate instead, and the 20-year purchasing power falls further, to roughly £45,600 — nearly £15,000 lower than the 2.5% scenario, and the nominal amount needed to match today's spending power rises to about £219,100. That gap between a "normal" and a "higher" inflation assumption is a useful reminder of why it's worth stress-testing any long-term plan against more than one inflation scenario.
Inflation isn't the same for everyone
The official inflation figure is calculated from a representative "basket" of goods and services meant to reflect typical UK household spending, but no single household actually buys exactly that basket. If your own spending is weighted more heavily towards categories that have risen faster than the average — energy, for instance, during periods of unusually high energy price inflation — your personal experience of inflation can run noticeably higher than the headline figure suggests, and vice versa if your spending happens to be weighted towards categories that have risen more slowly.
Frequently asked questions
Where can I check the current UK inflation rate?
The Office for National Statistics publishes the official CPI figures monthly, and these are widely reported by UK news outlets and available directly on the ONS website.
Does this calculator account for changes in my own spending habits?
No — it applies a single constant rate to a fixed amount, which is a simplification. Your own personal inflation experience can differ from the headline CPI figure depending on what you actually spend money on.
Should I use CPI or RPI as my assumption?
CPI (Consumer Prices Index) is the UK's official target measure and generally the more commonly used figure; RPI (Retail Prices Index) has historically tended to run higher and is still used for some specific purposes such as certain index-linked products, but is no longer used as a national statistic in the same way.
Why does the calculator show two different figures?
The two figures answer two slightly different questions: purchasing power shows what your amount could still buy in today's terms, while the nominal figure shows how many actual future pounds you'd need to match today's buying power exactly — both describe the same underlying erosion, just from opposite directions.
Does wage growth offset inflation for most people?
Often partially, since many people's income rises over time roughly alongside or ahead of inflation — but savings and cash left untouched don't benefit from wage growth at all, which is exactly why this calculator focuses purely on a static amount rather than assuming any income increase alongside it.
Why does even 'low' inflation still matter over the long run?
Because it compounds — a rate that sounds negligible year to year, such as 2%, still roughly halves purchasing power over around 35 years if sustained, which is why long-term financial plans should never ignore inflation entirely, even during periods when it feels unremarkable.
Should I use this figure when negotiating a pay rise?
It can help — comparing how your salary has moved against how prices have moved over the same period gives a more grounded sense of whether your real spending power has actually improved, stayed flat, or fallen, beyond just looking at the headline pay figure in isolation.