The amount written down is the 'nominal' value.
History's lessons for today's decisions ／ Calculate with Your Own Numbers
Calculating the real decrease in the value of money
How much will one million yen today be able to buy in ten years?
How Money Loses Value in 3 Minutes
1See it
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How much you can buy today is the 'real' value.
If prices go up every year...
You can buy less with the same nominal amount.
Nominal amount ÷ (1 + inflation rate) ^ number of years
This converts it to today's value.
The first numbers in the calculator are 1,000,000 yen, 2% per year, for 10 years.
How much will 0 yen today be able to buy in 10 years?
Use this for your estimated pension, your savings, or when you hear news about price hikes.
2In numbers
1,000,000yen
The initial nominal amount in the calculator. With 2% per year for 10 years, you get the present-day value and the percentage of decrease.
3What would you do?
Your pension statement arrived, and the amount is the same as last year. If prices keep rising, what happens to the amount you can buy?
Pick one
It stays the same
Even if the amount written down (the nominal value) is the same, if prices go up every year, the amount you can buy with that money decreases. You can use the calculator to see how much you can buy today (the real value).
It decreases
That's right. You can convert the nominal amount to today's value by dividing it by (1 + inflation rate) to the power of the number of years.
4Read more
When to use When reading about expected pension amounts, savings amounts, or news of price hikes.
Nominal value is the amount written on paper; real value is how much it can buy today. If prices rise every year, the amount you can buy with the same nominal value decreases. There is one formula: divide the nominal value by (1 + annual inflation rate) to the power of the number of years.
Try with your own numbers
If you change the numbers, it recalculates on the spot. The formula is written below.
Input value
Output value
Value adjusted to today's prices（10,000 yen）—
Rate of decline in value（%）—
Formula Today's Value = Nominal Value ÷ (1 + Inflation Rate)^Number of Years. Rate of Decline = 1 − 1 ÷ (1 + Inflation Rate)^Number of Years
In other countries
The definition of a price index is based on the same concept across countries. In Japan, it is published monthly by the Statistics Bureau of the Ministry of Internal Affairs and Communications, and in the U.S., by the Bureau of Labor Statistics.
Bibliography
- Consumer Price Index (CPI).Statistics Bureau, Ministry of Internal Affairs and Communications
- Consumer Price Index Frequently Asked QuestionsU.S. Bureau of Labor Statistics
Related Lectures and Notes
P2 Calculating simple and compound interest
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