What Money From the Past Is Worth Today, Explained
An inflation calculator converts a past amount into today's equivalent purchasing power by compounding an assumed or historical inflation rate over the number of years between the two dates — the same underlying compound-growth math used for investment growth, just applied to the general price level instead of an account balance.
"What would $X from back then be worth today" is really a compound-growth question in disguise, using inflation instead of an investment return as the growth rate.
The mechanics, illustrated with an assumed rate
Using an illustrative assumed average inflation rate of 3% per year (a commonly cited long-run average, not a claim about any specific historical period), $100 from 20 years ago would need to become roughly $181 today to represent the same purchasing power — the same compounding formula used for investment growth, applied here to rising prices instead of a growing balance.
A real inflation calculator typically uses actual historical price index data for past years rather than a flat assumed rate, which is more accurate but follows the same underlying compounding principle.
Why this matters beyond curiosity
Understanding this conversion is genuinely useful for comparing a past salary, a historical price, or an old savings goal to today's terms fairly — a $50,000 salary from decades ago isn't directly comparable to a $50,000 salary today without adjusting for how much prices have risen in between.