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Inflation Rate Calculator
Calculate the annualised inflation rate between any two price points.
Annualised Rate
Compound annual inflation between periods
Total Increase
Overall price change over the period
Purchasing Power
See how much value your money has lost
Calculate Inflation Rate
Enter prices from two periods to find the annualised inflation rate.
How to Calculate the Rate of Inflation
The Annualisation Formula
Rate = (P2/P1)^(1/years) - 1
Example: (130/100)^(1/5) - 1 = 5.39%
This formula converts a total price change into an equivalent annual compound rate. It accounts for the compounding effect — a 30% total increase over 5 years is not 6% per year, it is 5.39% per year compounded.
Worked Example
A basket of goods cost £100 in 2020 and £130 in 2025. Total increase = 30%. Annualised rate = (130/100)^(1/5) - 1 = 5.39% per year. This means prices increased by an average of 5.39% annually, compounded. This is higher than the 2% target, indicating above-average inflation during this period.
UK Inflation: Historical Context
Recent Trends
UK CPI peaked at 11.1% in October 2022 following the energy crisis and post-pandemic supply disruptions. It has since returned closer to the 2% target through monetary tightening (higher interest rates). Energy prices, food costs, and wage growth were the main drivers of the 2021-2023 spike.
Long-Term Average
The long-term average UK inflation rate is approximately 2-3% annually. The Bank of England targets 2% CPI inflation. Over 30 years at 2.5% inflation, prices roughly double — what costs £100 today would cost ~£210. This makes inflation a critical factor in long-term financial planning.
How to Use This Inflation Rate Calculator
Enter Year 1 Price
The price or index value at the start.
Enter Year 2 Price
The price or index value at the end.
See Results
Annualised rate, total increase, and purchasing power.
Why Inflation Rate Matters for Your Finances
- Real vs nominal returns. Your investment return minus inflation gives the real return — the actual increase in purchasing power. A 7% return with 3% inflation is only 3.88% real growth.
- Wage growth comparison. If your salary rises 3% but inflation is 5%, you have taken a real-terms pay cut of about 2%. Compare wage growth to inflation to understand your true income trajectory.
- Savings erosion. Cash savings earning below the inflation rate lose purchasing power every year. At 5% inflation and 2% savings rate, your real return is negative 3%.
- Retirement planning. A 2.5% inflation rate halves purchasing power in ~28 years. Retirement plans must account for decades of inflation to maintain living standards.
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