Inflation Calculator

What is Inflation?

Inflation is the general increase in prices across the economy over time. As inflation rises, the purchasing power of your money falls – meaning you get less for the same amount.

How is Inflation Measured?

In Norway, inflation is primarily measured through the Consumer Price Index (CPI), which tracks the price changes of a basket of common goods and services purchased by households. Norges Bank also uses CPI-JAE (CPI adjusted for tax changes and excluding energy products) as its preferred inflation measure.

Inflation Target in Norway

Norges Bank has an inflation target of 2% per year. This means prices are expected to rise by roughly 2% annually over time. Moderate inflation is considered healthy for the economy, while too high or too low inflation can cause problems.

The Formula for Inflation Adjustment

Our calculator uses the following formula to compute inflation-adjusted value:

Adjusted Amount = Original Amount × (1 + inflation)^number of years

To calculate the present value of a future amount (discounted value):

Present Value = Future Amount / (1 + inflation)^number of years

Examples

Example 1: Historical Purchasing Power

£100,000 in 2000 is equivalent to about £168,948 in 2024, with an average inflation of 2.2% per year. This means you needed £168,948 in 2024 to buy the same as £100,000 bought in 2000.

Example 2: Future Value

If you have £500,000 today and inflation is 2.5% per year, this amount will have a purchasing power of only about £390,121 in 10 years (measured in today's pounds).

Historical Inflation in Norway

• 1970s: High inflation, often over 10% per year
• 1980s: Gradual decline, but still high (5-10%)
• 1990s: Stabilisation around 2-3%
• 2000s: Relatively stable, 1-3%
• 2020-2023: Increased inflation after COVID-19 and the energy crisis

Why is Inflation Important?

For Saving and Investing

If the savings rate is lower than inflation, your money loses value over time. For example:

• Savings rate: 1.5% per year
• Inflation: 3% per year
• Real return: -1.5% per year

This is called negative real interest rate, and money loses purchasing power even if it grows nominally.

For Wages and Pensions

Wage negotiations often take inflation into account to maintain real purchasing power. A 2% salary increase when inflation is 3% actually means a 1% reduction in real wages.

For Debt

Inflation reduces the real value of debt over time. A mortgage of £3 million becomes "easier" to repay in 20 years if wages have risen with inflation.

How to Protect Yourself Against Inflation?

• Invest in stocks: Historically, stocks have provided returns above inflation in the long term
• Property: Property prices often follow inflation
• Inflation-indexed bonds: Government bonds adjusted for inflation
• Real assets: Investments in companies with pricing power
• Wage negotiations: Ensure salary increases keep pace with inflation