Inflation Reference Sheet
Two questions, one reciprocal. And the rule of 70 for doing it in your head.
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The arithmetic
- WHAT YOU WILL NEED
- amount x (1 + rate)^years
- WHAT IT WILL BUY
- amount ÷ (1 + rate)^years
- They are reciprocals
- same erosion, opposite ends
- RULE OF 70
- 70 ÷ rate = years to double or halve
- At 3%
- about 23 years — inside a working life
- 3% over 25 years
- prices x2.09 · buying power −52%
- Exact vs rule of 70
- 23.4 against 23.3 — close enough to use
- ⚠ Rate is not one number
- varies by year, country and what YOU buy
- ⚠ Long projections
- read as order of magnitude, not a figure
Scenarios
| What | Amount | Years | Rate | Will need | Will buy |
|---|---|---|---|---|---|
This projection
- What it is for
- Date
- Amount today
- Years
- Rate used
- Second rate tried
- WILL NEED THEN
- WILL BUY THEN
- Purchasing power lost
- Years to halve
- What I will do about it
Using it honestly
- Decided WHICH question you are asking — need, or buy
- Rate chosen to reflect your own spending, not just the headline
- Run at two or three rates and the spread noted
- Long projections treated as order of magnitude
- Historic periods checked against published indices instead
- Rule of 70 used as the mental check on the result
- Investment decisions taken separately, with a qualified adviser
Two questions, very different answers
At 3% over 25 years, matching $100 of today's spending needs $209 — while $100 held will buy about $48 of today's goods. Both are the same erosion from opposite ends, and taking the smaller one as the answer to the first question badly understates what a future goal costs.
The gradualness is the difficulty
The first year costs under $3 on $100, which is exactly why it is ignorable. Compounded, 3% halves purchasing power in about 23 years — inside a working life, with no single year ever being alarming enough to act on.