Lesson 4
Inflation-adjusted value: what future money is worth today
A calculator can tell you that a savings plan reaches ₹40 lakh. The more useful question is what ₹40 lakh will buy when you get it. Adjusting for inflation turns a future figure into today's money.
The adjustment
Value in today's money = future amount ÷ (1 + π)t
π is the yearly inflation rate as a decimal and t the number of years. ₹10,00,000 received 20 years from now, with prices rising 6% a year, is worth 10,00,000 ÷ 1.0620 = ₹3,11,805 today. At 4% a year it would be ₹4,56,387.
| ₹1,00,000 received after | Worth today at 4% | Worth today at 6% |
|---|---|---|
| 5 years | ₹82,193 | ₹74,726 |
| 10 years | ₹67,556 | ₹55,839 |
| 20 years | ₹45,639 | ₹31,180 |
| 30 years | ₹30,832 | ₹17,411 |
Real return
The return after inflation is not simply the difference between the two rates:
Real return = (1 + nominal) ÷ (1 + inflation) − 1
An 8% return with 6% inflation is a real return of 1.08 ÷ 1.06 − 1 = 1.89%, slightly under 2%. A 7% deposit rate against 4% inflation is a real 2.88% before tax.
Which inflation rate to use
The Central Government, in consultation with RBI, sets an inflation target once every five years. The target is 4% inflation as measured by the Consumer Price Index, with an upper tolerance limit of 6% and a lower limit of 2%; it was retained on 25 March 2026 for 1 April 2026 to 31 March 2031 (Source: Reserve Bank of India, checked 26 October 2026). A target is a policy aim, not a forecast: actual inflation can be higher or lower, and your own costs (school fees, healthcare, rent) can rise faster than the index. That is why our calculators default to 4% and let you try 6% or more.
Try it
Result
- A future amount of this size is worth today
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- To match this amount's buying power then, you would need
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Sources
- Monetary Policy: overview of the inflation target. Reserve Bank of India. Checked 26 October 2026.
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