Calculate the effect of inflation on monthly costs

What is inflation?

Inflation is basically the rate at which money loses its purchasing power, e.g. ₹1,000 after a year will buy less than it can today if inflation is positive. Inflation is a vast topic and is influenced by various things such as political decisions, monetary decisions, war, natural catastrophes, etc. What's important to know is that even when inflation goes down, e.g. from 6 % to 4%, money still loses value, just at a slower pace than before.

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Note:

1. There are different ways to measure inflation, all usually using available data. Different methods, yield different results.

2. Decreasing inflation does not necessarily mean goods become cheaper. If inflation in 2023 was 5%, and is 4% in 2024, although inflation has reduced, the price of goods will still continue to increase - just at a smaller or slower rate.

3. Inflation figures are reported at a consolidated level, e.g. food inflation. This is like a kind of average. Remember, prices of different goods (food, industrial etc) may change at different rates, e.g. the cost of an egg in a given year may go up from ₹4 to ₹5 (25% increase) but milk may go up from ₹50 to ₹53 in the same year (6% increase)

 

How are future monthly costs considering inflation estimated?

The formula that can be used to estimate the future monthly costs for a given rate of inflation along with an explanation of the  terms is provided above. In essence, its the same formula for calculating the value of a lumpsum investment, i.e. the growth of an invested sum of money, except that here instead of doing an investment, we're calculating how much costs would rise by over time.

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How would monthly costs of ₹50,000 be affected by inflation?

Assuming a monthly expense of ₹50,000 and an inflation rate of 5%, here are some outcomes, i.e. future costs for different periods of time:

1.  5 years: ₹63,815

2.  10 years: ₹81,445

3. 15 years: ₹1,03,947

4. 20 years: ₹1,32,665

5. 30 years: ₹2,16,098

6. 40 years: ₹3,52,000

7. 60 years: ₹9,33,960

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Note: Over longer periods, the compounding effects become noticeable, e.g. The cost increase between year 30 and year 40 is larger than between year 20 and year 30 even though in both cases exactly 10 years passes by. If inflation is larger, then these differences would be even more pronounced.

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What does this inflation calculator do?

This calculator helps you identify what your future monthly expenses could look like after considering the effects of inflation, e.g. if your current monthly costs are ₹50,000, then after 5 years at a constant 5% rate of inflation, the monthly costs increase to ₹63,815 (to maintain the same standard of living). This calculator also shows the results for the next 30 years in tabular form so that the user can see the progression of costs over time at a glance. For the above example, the costs in the 18th year would be ₹1,20,331 or in 35th year would be ₹2,75,801

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It is actually impossible to accurately predict the future costs under inflation as this depends on what the rate of inflation at different points of time. However, for investment planning purposes and to get an idea of the expected costs,  a calculator that uses some assumptions can be used.
 

Why is this cost inflation calculator special?

This cost inflation calculator is special because it is very easy to use and is available online on a website that also hosts a whole bunch of other financial and investment related calculators which will make it easier for you to calculate whatever you need.

 

Besides showing the expected costs under inflation for a given point of time, it also shows the expected costs for for the next 30 years in a tabular form so that you can quickly get a feel of how costs could grow. This is useful because inflation works exponentially, or under compounding effects and it's sometimes difficult to sometimes estimate over larger periods of time.

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Why is a estimating the impact of inflation on monthly costs useful?

This future monthly costs calculator is useful as it can help with retirement planning, monthly budgeting, or investment planning. It shows how costs increase over time and how important it is to plan for retirement and future expenses. It also helps a user get an idea of whether his current income and/or investment planning is on track to cover future increases in monthly costs. It's also a good way for beginners and professionals alike to get a feel of the effects of compounding and to make better decisions.

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How do I use this calculator to determine the impact of inflation on costs?

Instructions to use this calculator to determine the impact of inflation on costs are provided above.

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Why should I use a this cost estimation calculator?

This calculator is easy to use and can help you save time. It can help in retirement planning, wealth planning, investment planning and many other ways.