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Purchasing Power Formula:
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Purchasing power refers to the amount of goods and services that can be purchased with a unit of currency. It decreases over time due to inflation, meaning the same amount of money buys less in the future than it does today.
The calculator uses the purchasing power formula:
Where:
Explanation: This formula calculates how much future purchasing power your money will have after accounting for inflation over a specified number of years.
Details: Understanding purchasing power loss is crucial for financial planning, retirement savings, investment decisions, and maintaining your standard of living over time.
Tips: Enter the original amount in your local currency, the inflation rate as a decimal (e.g., 0.03 for 3%), and the number of years. All values must be valid (amount > 0, inflation rate between 0-1, years between 0-100).
Q1: Why does purchasing power decrease over time?
A: Purchasing power decreases due to inflation, which is the general increase in prices of goods and services over time.
Q2: What is a typical inflation rate?
A: Most central banks target around 2% annual inflation, but rates can vary significantly by country and economic conditions.
Q3: How can I protect my purchasing power?
A: Investments that outpace inflation (stocks, real estate, inflation-protected securities) can help maintain purchasing power.
Q4: Is this calculation accurate for long periods?
A: While mathematically correct, actual inflation rates vary year to year, so this assumes a constant inflation rate.
Q5: Can purchasing power ever increase?
A: Yes, during deflation (negative inflation), purchasing power can increase, though deflation is rare and often indicates economic problems.