How fast does 6% inflation erode your money?

Question

Prices rise 6\% per year. Solve in your head. Roughly how many years until prices double (your purchasing power halves), and until prices quadruple? Aim: under 15 seconds.

Accepted Answer

Inflation compounds just like a return, so the rule of 72 applies to the price level. Prices double in \frac{72}{6} = 12 	ext{ years}, at which point a dollar buys half of what it does today. Quadrupling is two doublings, so prices quadruple in 2 	imes 12 = 24 years, and your purchasing power falls to a quarter. Sanity check: exact doubling time is \dfrac{\ln 2}{\ln 1.06} = \dfrac{0.693}{0.0583} \approx 11.9 years, essentially 12. Takeaway. The rule of 72 measures how fast anything compounds, gains or erosion alike. At 6\% inflation, purchasing power halves every 12 years; multiply doubling…

How fast does 6% inflation erode your money?

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