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Page written by Ian Hawkins. Last reviewed on March 11, 2026. Next review due April 1, 2027.
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
Inflation refers to the general increase in prices of goods and services over time, resulting in a decrease in the purchasing power of money. It’s essentially the decline in the real value of money, leading to higher prices for everyday items.
Inflation is typically calculated using the Consumer Price Index (CPI), which measures the average change in prices paid by consumers for a basket of goods and services over time. The formula for calculating inflation rate is:
Inflation Rate = [(Current CPI – Previous CPI) / Previous CPI] * 100%
Example: Suppose the CPI for January is 250 and the CPI for December is 260.
Using the formula:
Inflation Rate = [(260 – 250) / 250] * 100%
Inflation Rate = (10 / 250) * 100%
Inflation Rate = 0.04 * 100%
Inflation Rate = 4%
The average inflation rate over the past few decades has been around 3-4% annually. However, it can vary significantly from year to year due to economic factors and government policies.
Hyperinflation is an extreme form of inflation characterized by rapid and uncontrollable increases in the prices of goods and services. It often leads to the devaluation of a country's currency and can have severe economic consequences.
Investing in assets that tend to increase in value over time, such as real estate, stocks, and precious metals, can help protect against inflation. Additionally, consider investing in inflation-indexed securities and diversifying your investment portfolio to mitigate the impact of inflation.
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