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Salary Inflation Calculator

Range: 0 – 1,000,000,000

Range: -50 – 200

Range: 1 – 100

Result

69,556.44

Salary needed to keep up

What the salary is worth then
51,756.53
Change in buying power
8,243.47
Total inflation over the period
15.93%

A salary inflation calculator answers a question a pay rise does not: not whether the number went up, but whether it went up by enough. Enter what you are paid now, the inflation rate you want to reason about, and a number of years, and the page returns two figures that look similar and mean opposite things. The first is what your current salary would have to become for the same standard of living to hold. At 60,000 with prices rising three percent a year for five years, that figure is 69,556.44: the raise you would need is 15.93 percent, which is not fifteen percent and is the whole reason compounding is worth a page of its own. The second figure is the mirror of it: what today's salary would feel like in five years if it did not move at all, which on the same numbers is 51,756.53. The distance between those two is the part that gets missed in a conversation about a three percent raise, because three percent a year for five years takes 15.93 percent out of a salary, not fifteen, and twenty years at the same three percent take 80.61 percent out of it rather than sixty. The rate is yours to choose and the page does not supply one, because there is no single right figure: a national measure of price change is compiled from a basket that no individual buys, and a person whose spending is mostly rent, or mostly food, has a personal rate that is higher or lower than the published one. The page is also honest about a rate below zero. Falling prices are rare but they are not impossible, and the arithmetic works in the other direction rather than breaking: a salary outruns falling prices, and the row that measures the change turns negative. That is why the row is named for the change rather than for a loss.

Three percent a year on a salary of 60,000, over five periods

YearsCumulative inflationRequired salary
1361800
39.2765563.62
515.9369556.44
1034.3980634.98
2080.61108366.67

Every row locks the salary at 60,000 and the rate at three percent and moves only the exponent, so the last column is the first column applied to the same figure. The shape is the point: the twenty-year row is more than four times the five-year row rather than four times it, because compounding is not proportional in time. One year at three percent needs 61,800, twenty years needs 108,366.67, and the second figure is nowhere near twenty times the first increase — it is eight times the five-year increase. Reading the middle column down is the quickest way to see why a fixed annual increase agreed for a long period under-delivers against a rate that keeps moving: 3, 9.27, 15.93, 34.39, 80.61. The table stops at twenty years, which is long enough that the projection is a demonstration of the arithmetic rather than a plan.

Formula

Discount factor ＝ 1 ÷ (1 ＋ inflation rate ÷ 100) ^ years　｜　Required salary ＝ current salary ÷ factor　｜　Real salary ＝ current salary × factor

currentSalary
What you are paid today. It has to be greater than zero, because every other row on the page is derived by dividing by it, and the page refuses the entry rather than printing a panel of zeroes
inflationRate
The annual rate of price change the whole page is built on, in percent. Negative values are accepted and are not an error: a rate below zero means prices are falling and the same arithmetic runs the other way
years
How many years to project, as a whole number. It is the exponent, which is why it does the most work of the three inputs: doubling it more than doubles the effect
requiredSalary
The salary that would keep the same standard of living at the end of the period. It is the first of the two answers, and it is always above the current salary when the rate is positive
realSalary
What today's salary would be worth at the end of the period if it did not move. It is the mirror of the row above, and the gap between the two is the raise that would be needed
purchasingPowerChange
The distance between the current salary and what it will be worth, taken as a subtraction rather than as a percentage. It turns negative when prices fall, which is a gain rather than an error
cumulativeInflation
The total price change over the period, compounded, which is what the required salary row is an expression of. At three percent a year over five years it is 15.93 percent and not fifteen

Use it to put a raise in context: a figure quoted as annual and a figure quoted as the total increase over several years are not the same number, and this page converts between them. It is also the page to open before agreeing to a multi-year arrangement with fixed increases in it, because the compounding that makes five years of three percent worth 15.93 percent is exactly what a fixed three percent a year under-delivers against. Use the money-side inflation page instead when the question is about a sum that is not a salary.

Worked examples

  1. Default case: 60,000, three percent a year, five years

    1. Discount factor: 1 ÷ 1.03 ^ 5 ＝ 1 ÷ 1.1592740743 ＝ 0.8626087844
    2. Required salary: 60,000 ÷ 0.8626087844 ＝ 69,556.44
    3. Real salary: 60,000 × 0.8626087844 ＝ 51,756.53　｜　purchasing power change: 60,000.00 − 51,756.53 ＝ 8,243.47
    4. Cumulative inflation: 69,556.44 ÷ 60,000 × 100 − 100 ＝ 15.93

    The last step is the one worth doing by hand, and it divides the rounded required salary rather than an unrounded one, so the figure you get is the figure on the panel. Fifteen percent is the number people carry away from a conversation about three percent a year over five years, and it is short by almost a full point: 15.93 is what the same sentence means.

  2. Falling prices: 50,000 with two percent deflation for ten years

    1. Discount factor: 1 ÷ 0.98 ^ 10 ＝ 1 ÷ 0.8170728069 ＝ 1.2238811420
    2. Required salary: 50,000 ÷ 1.2238811420 ＝ 40,853.64　— less than the current salary, because prices are falling
    3. Real salary: 50,000 × 1.2238811420 ＝ 61,194.06
    4. Purchasing power change: 50,000.00 − 61,194.06 ＝ −11,194.06　｜　cumulative inflation: 40,853.64 ÷ 50,000 × 100 − 100 ＝ −18.29

    Everything here runs backwards and nothing breaks, which is why the fourth column is named for a change rather than for a loss. A negative purchasing power change is a gain: the same salary buys more at the end of the period than at the start. Deflation of this size and duration is rare, and the row existing is a property of the arithmetic rather than a forecast.

  3. Twenty years at seven percent on 45,000

    1. Discount factor: 1 ÷ 1.07 ^ 20 ＝ 1 ÷ 3.8696844625 ＝ 0.2584190028
    2. Required salary: 45,000 ÷ 0.2584190028 ＝ 174,135.80
    3. Real salary: 45,000 × 0.2584190028 ＝ 11,628.86　｜　purchasing power change: 45,000.00 − 11,628.86 ＝ 33,371.14
    4. Cumulative inflation: 174,135.80 ÷ 45,000 × 100 − 100 ＝ 286.97

    Seven percent a year sounds like a rate a central bank would fight rather than a planning assumption, and over twenty years it is 286.97 percent: the salary needed nearly quadruples while the salary itself does not move. This is the row that shows what an exponent does. Twenty years is not four times five years of effect, it is far more, and the difference is entirely in the compounding.

  4. 2.5 percent on 82,000 for three years

    1. Discount factor: 1 ÷ 1.025 ^ 3 ＝ 1 ÷ 1.076890625 ＝ 0.9285994109
    2. Required salary: 82,000 ÷ 0.9285994109 ＝ 88,305.03
    3. Real salary: 82,000 × 0.9285994109 ＝ 76,145.15　｜　purchasing power change: 82,000.00 − 76,145.15 ＝ 5,854.85
    4. Cumulative inflation: 88,305.03 ÷ 82,000 × 100 − 100 ＝ 7.69

    2.5 percent a year over three years is 7.69 percent, and that is the number to compare against a three-year pay deal. A deal offering 2.5 percent a year is offering exactly the rate assumed here, which leaves a salary standing still relative to prices — not falling behind, and not gaining either.

  5. The case with no inflation: 60,000 at zero percent for five years

    1. Discount factor: 1 ÷ 1.00 ^ 5 ＝ 1
    2. Required salary: 60,000 ÷ 1 ＝ 60,000.00　｜　real salary: 60,000 × 1 ＝ 60,000.00
    3. Purchasing power change: 60,000.00 − 60,000.00 ＝ 0.00
    4. Cumulative inflation: 60,000.00 ÷ 60,000 × 100 − 100 ＝ 0.00

    A rate of zero collapses every row onto the current salary, and the case is worth keeping in mind as the boundary the whole page is built around: the two answers only differ by how far the rate is from zero, and the number of years only matters once the rate is not zero. It is not a realistic assumption over five years; it is the reference point that makes the other rows legible.

Limitations

This page projects a salary against a single inflation rate held constant for the whole period. Real inflation is not constant, and the order in which rates arrive matters: three percent a year for five years and a single jump of 15.93 percent in the fifth year produce the same cumulative figure here and quite different experiences of it. The rate itself is an input the page does not supply: a published national figure is built from a basket no individual buys, and a household spending most of its income on rent or on food has a personal rate that differs from the published one, sometimes by a lot. The page assumes the salary does not change over the period, which makes it a statement about purchasing power rather than a forecast: anyone who expects a raise in the middle should run the page twice, once to the raise and once from it. Everything here is gross. A salary that keeps pace with prices before tax can still lose ground after it, because tax bands and allowance thresholds are usually fixed in nominal terms, so a salary that merely matches inflation creeps into a higher effective rate. Nothing here is a cost of living calculation: there is no field for housing, dependants or a change in circumstances, and the figure is a general price index applied to a salary rather than a budget. One convention is worth naming because it is visible to anybody who checks the arithmetic. The two salary rows are rounded to the cent first, and the cumulative percentage is then derived from the rounded required salary rather than from the unrounded one, so that dividing the printed figures by hand reproduces the printed percentage. Dividing the unrounded values instead would give the same figure to two decimals in almost every case, and the page prefers the version a reader can verify. The current salary has to be positive. It is the divisor in three of the four rows, so a salary of zero would produce a panel of zeroes that describes nothing, and the page rejects the entry rather than printing it. That is the opposite of what the pay raise page does with the same field, and deliberately so: there the salary is an addend and zero is a real answer for a salary not yet set.

Frequently asked questions

Why is a three percent raise not three percent?
Because prices compound and a single raise does not. Three percent a year for five years is 15.93 percent of cumulative inflation, not fifteen, and twenty years at the same rate is 80.61 percent rather than sixty. A raise of three percent in a year when prices rose three percent holds a salary level; five years of three percent raises against three percent inflation hold it too, but a single three percent raise against five years of it does not. This page's required salary row is the figure to compare a multi-year deal against.
Which inflation rate should I use?
One you can cite, and one that matches the period you are projecting. The page does not supply a default figure on purpose: a published national rate is compiled from a basket that represents the average household, and a household that spends most of its income on rent, or on food, has a personal rate that differs from it. Use a published measure and name it, rather than picking a round number, and be aware that a rate for the last twelve months is a statement about the past being run forward, not a forecast.
What does a negative rate mean here?
Falling prices, and the arithmetic continues rather than breaking. The required salary comes out below the current one, the real salary comes out above it, and the purchasing power change is negative — which is a gain, not an error. That is why the row is named for the change rather than for a loss. Deflation of any size is unusual and sustained deflation is rarer still, so the case exists because the arithmetic supports it rather than because it is expected.
Why can't I enter zero as my salary?
Because the salary is the divisor in three of the four rows, so zero would produce a panel of zeroes that describes no salary at all rather than answering a question. The pay raise calculator takes the same field and does accept zero, because there it is an addend and zero is a legitimate answer for a salary that has not been set yet. The two pages treat the same number differently on purpose, and the field's own bound is what enforces it.
Is this the same as the inflation calculator?
The arithmetic is, the question is not. That page starts from a sum of money and asks what it will be worth later, and its main figure is what the money becomes. This page starts from a salary and asks what it would have to become to hold its standard of living, and its main figure is the salary you would need. Both run the same compound discount, and the side by side is the reason the two pages exist separately: what a salary is worth and what it would have to be are different sentences about the same number.
Does keeping up with inflation mean keeping my standard of living?
Before tax, yes; after tax, not necessarily. The figures here are gross. Tax bands and allowance thresholds are commonly fixed in nominal terms rather than indexed, so a salary that rises exactly with prices can move into a higher effective rate and leave less than it did, even though the calculation says purchasing power was preserved. The page cannot model that, and it cannot model the other half either: a cost of living calculation would need rent, household size and what a household actually spends its money on, and this page has a field for none of them.

References

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