Inflation Impact on Salary Visualizer
Visualize how inflation erodes your salary’s purchasing power over time, even with pay rises.
Quick Use Samples
Your Salary Projection
Inflation's Impact
Over 5 years, your nominal salary is projected to grow to $92,741.93. However, when adjusted for 3.5% annual inflation, its real purchasing power will only be $78,086.21. This means you will have lost $14,655.71 in purchasing power over the period. Your salary is not keeping up with inflation, causing your purchasing power to decrease by about 0.5% per year.
In 5 years, your salary will be:
$92,741.93
But its purchasing power will only be:
$78,086.21
Lost Purchasing Power: $14,655.71
Year-by-Year Breakdown:
💰 Ready to grow your money?
- 🔹 Raiz: Microinvest your spare change
- 🔹 Swyftx: Trade crypto with confidence
We may receive a commission from our partners if you sign up through these links. This helps us keep our tools free.
What is Inflation's Impact on Salary?
Inflation erodes the purchasing power of your money over time. This visualizer shows the difference between your nominal salary (the dollar amount you're paid) and your real salary (what that money can actually buy). Even with a pay rise, if inflation is higher, your ability to afford goods and services can decrease.
Behind the Formula
The calculator projects your salary year by year with an assumed annual pay rise. It then discounts this future salary by the rate of inflation for each year. This calculation reveals your 'real' salary in today's dollars, illustrating the cumulative loss of purchasing power if your pay rises do not outpace inflation.
Expert Insights
- A pay rise that matches inflation is not a raise; it's a pay freeze in real terms. To genuinely get ahead, your salary increase must be higher than the inflation rate (CPI).
- High inflation disproportionately affects those with stagnant wages and people on fixed incomes, like retirees, as the cost of living rises but their income does not.
- Assets like property and shares are often seen as a hedge against inflation, as their value can rise with or faster than the rate of inflation over the long term, unlike cash savings.
Actionable Tips
- Use this visualizer during your annual performance review. It can be a powerful tool to justify a pay rise that is above the current rate of inflation.
- Focus on growing your 'real' income, not just your nominal income. This means seeking promotions, upskilling, or changing jobs to secure pay rises that significantly beat inflation.
- Protect your savings from inflation by investing. Money left in a low-interest savings account will lose purchasing power year after year.
Real-World Examples
The 'Pay Freeze' Illusion
An employee receives a 3% pay rise, but inflation for the year is also 3%. The visualizer shows that after 5 years of this trend, their nominal salary is higher, but their real purchasing power has not increased at all.
Falling Behind
A person in a low-growth industry receives 2% annual raises while inflation runs at 4%. The tool visualizes how their real salary is actively decreasing each year, meaning they can afford less and less over time.
Getting Ahead
A software engineer secures an 8% annual pay rise in a year with 3.5% inflation. The visualizer shows how their real salary and purchasing power are growing significantly, accelerating their ability to save and invest.
Glossary of Terms
Nominal Value
The face value of money, not adjusted for inflation.
Real Value
The value of money adjusted for inflation, representing its actual purchasing power.
CPI (Consumer Price Index)
The most common measure of inflation in Australia, tracking the average change in prices for a basket of household goods and services.