Core isn’t “low” inflation
Core CPI just strips food and energy to see stickier trends; headline can run hotter or colder by several points in a single month.
Headline vs core
Inflation Calculator — Fisher (Ex-ante), Forwards, & Amount Adjuster
Expected Inflation (Fisher)
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Forward (ex-ante) via Fisher: exact \(\displaystyle \pi = \frac{1+i}{1+r}-1\); approximation \(\pi \approx i-r\).
Forward Inflation from Spots (m→n)
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\(\displaystyle (1+ \pi_{0,n})^n = (1+\pi_{0,m})^m \cdot (1+ f_{m,n})^{\,n-m}\Rightarrow f_{m,n}=\left(\frac{(1+\pi_{0,n})^n}{(1+\pi_{0,m})^m}\right)^{\!\frac{1}{n-m}}-1\).
Inflate / Deflate Amount
Load CPI from built-in datasets (optional)
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\(\displaystyle \text{Amount}_{\text{end}} = \text{Amount}_{\text{start}}\times\frac{\text{Index}_{\text{end}}}{\text{Index}_{\text{start}}}\).
Understanding Inflation, Fisher Equation, and Forward Rates
Inflation is one of the most important economic concepts because it affects the purchasing power of money, the real return on investments, and the cost of borrowing. In simple terms, inflation measures the rate at which the general level of prices for goods and services rises over time. Central banks such as the Federal Reserve in the United States or the Bank of England in the United Kingdom carefully monitor inflation data to set interest rate policy and guide economic stability.
One of the standard ways to estimate expected inflation is through the Fisher equation. The Fisher relationship connects nominal interest rates, real interest rates, and expected inflation. It tells us that nominal rates are approximately equal to real rates plus inflation. When inflation is low, the approximation works well; when inflation is higher, the exact formula provides a more precise adjustment. Understanding this equation helps investors, students, and policymakers distinguish between the “headline” rate offered on savings or bonds and the inflation-adjusted return that actually matters for wealth.
Another useful concept is the forward inflation rate. Forward rates are derived from comparing different maturity “spot” inflation rates, allowing us to calculate the implied inflation between two future dates (for example, between year 2 and year 5). Analysts and traders use forward rates to infer how markets expect inflation to evolve over time, which can influence investment decisions, long-term contracts, and wage negotiations.
Beyond financial markets, inflation adjustment is also practical for everyday life. If you want to compare salaries from different years, evaluate the historical cost of housing, or adjust a budget for long-term projects, you need to inflate or deflate values using an index such as the Consumer Price Index (CPI) or Retail Price Index (RPI). By dividing or multiplying amounts with CPI ratios, you can convert prices into “real” terms, stripping out the effect of inflation and making comparisons more meaningful.
Whether you are a student learning economics, a business professional working with financial forecasts, or simply a curious saver, understanding how to measure and adjust for inflation is an essential skill. With client-side calculators like this one, you can run these calculations privately, quickly, and accurately using your own data or publicly available CPI series.
5 Fun Facts about Inflation
Rounding hides a lot
Monthly CPI is often rounded to one decimal. A 0.14% vs 0.24% move both read “0.2%” but annualize to different stories.
Decimal drama
Deflation boosts real growth
Negative inflation makes nominal growth look meeker than real growth—real GDP can rise faster than the money numbers suggest.
Price lift
Base effects are optical illusions
High or low prints a year ago can make today’s YoY inflation swing, even if monthly changes are calm. Always peek at month-on-month.
Compare carefully
Breakevens aren’t a “forecast”
Inflation swaps and TIPS breakevens embed risk premia and liquidity quirks—they’re a market price, not a crystal ball.
Market lens