Online Inflation Calculator: Why It’s Vital for Your Finances
Inflation acts like a silent thief, gradually diminishing the value of your money. With our online inflation calculator, you can easily grasp how inflation impacts your savings and investments. This tool illustrates how the value of money decreases over time when left idle in a bank account or even “under the mattress”.
Why is an Inflation Calculator so Important? Simply because inflation has a long-term impact on your purchasing power. If you don’t invest or save your money in a way that outpaces inflation growth, you gradually lose value. For instance, money stored in a bank account with no interest essentially loses its real value over time. A year later, you’ll be able to buy less with the same amount of money.
Our inflation calculator provides a clear picture of what happens to your money due to inflation. It enables you to better plan and make decisions on where to invest your hard-earned money to better shield it against inflation losses.
Investing in various financial instruments, such as stocks, bonds, or mutual funds, can be one way to beat inflation and ensure that your money not only maintains its value over time but also grows. Our inflation calculator is the first step towards making informed decisions about your financial goals and strategies.
Inflation Rate Calculation (Formula)
The rate of inflation is calculated using a formula that compares the change in the consumer price index (CPI) over a certain period. The basic formula for calculating the rate of inflation is: Inflation (%) = ((Current CPI − Previous CPI) / Previous CPI) × 100
Where:
- Current CPI is the Consumer Price Index for the current period.
- Previous CPI is the Consumer Price Index for the previous period.
The Consumer Price Index (CPI) tracks the average change in prices of a basket of consumer goods and services, such as food, transportation, and healthcare, purchased by households. The difference in CPI between two periods shows how the “purchasing power” of money has changed.
For example, if the CPI was 100 a year ago and the current CPI is 105, it means prices have risen by an average of 5%, which is the inflation rate for that period.
Current inflation for the year
However, the calculation of inflation in our calculator is more simplified and thus not entirely accurate. The current rate of inflation is constantly changing and can be best tracked directly on the website of the Czech Statistical Office or in the public database, where the consumer price index is visible.
How to Protect Against Inflation?
Defending against inflation involves strategies and financial tools that help protect the value of your money over time. Here are several strategies to defend against inflation:
- Investing in Stocks or ETFs: The stock market can offer better returns than inflation, especially over a long-term horizon.
- Real Estate Investment: Real estate is traditionally considered a good way to hedge against inflation. The value of property and rent can rise with increasing inflation. Interesting statistics on real estate price growth can be found on Properstar or Deloitte.
- Commodities and Precious Metals: Investing in commodities like gold, oil, or agricultural products can be an effective defense against inflation. Gold is often seen as a safe haven during high inflation periods. An alternative to buying physical gold is purchasing ETFs, such as iShares Physical Gold ETC.
- Inflation-Protected Bonds: These bonds, such as government bonds with inflation protection, are tied to an inflation index. The returns from these bonds adjust to the rate of inflation, thereby protecting the purchasing power of the invested money.
- Diversifying Portfolio: Diversifying your investments can help reduce the risk of losing your portfolio’s value due to inflation. This means investing across different asset classes and sectors.
- International Investments: Investing in international markets can provide protection against domestic inflation, especially if the domestic currency is depreciating.
Remember, every investment strategy carries some risk, and it’s important to consult with a financial advisor.