Setting Inflation in the Simulator: Why It’s Crucial

Why the inflation setting is central in any buy or rent simulator

In a serious buy or rent simulator, the inflation_annuelle (annual inflation) parameter is not cosmetic. It drives how the tool projects the future evolution of:

• your cost of living (energy, services, everyday goods);
• rents (via rent indexation);
• maintenance and renovation costs;
• and, indirectly, the real burden of your mortgage payments.

If you leave this inflation simulator setting at an unrealistic value, your buy or rent comparison will be biased: you might overestimate the cost of renting, or underestimate the long‑term weight of your mortgage.

This article shows, with concrete numbers, why setting inflation correctly in the simulator is crucial, and how this parameter interacts with other key inputs: loan rate (~3.6%), property tax, renovation budget, investment return, rent increases, and more.

1. What does the inflation simulator setting actually do?

The inflation_annuelle parameter represents the average yearly price increase over the long term. For example:

• inflation_annuelle = 1% → mild inflation;
• inflation_annuelle = 3% → sustained inflation;
• inflation_annuelle = 5% → high, persistent inflation.

In a buy or rent simulator, this rate is typically used to:

• revalue rents over time, together with the rent index;
• project the cost of works (materials and labor);
• update recurring expenses (home insurance, service charges, utilities);
• deflate future cash flows to compare them in today’s money.

In other words, the inflation simulation parameter is the lens through which the tool views your future buy or rent trajectory.

2. How inflation changes the buy or rent balance

2.1. For renters: rents that climb year after year

When you rent, your main housing cost is the monthly rent. In many countries, rents are indexed to inflation through official indices. Over the last decades, rent indices in Europe have often increased by around 1.5–2% per year on average, with recent peaks above 3%.

In the simulator, if you set:

• inflation_annuelle = 1%: rents grow slowly, renting looks relatively stable and cheap in the long run;
• inflation_annuelle = 3%: rents grow much faster, and long‑term renting becomes significantly more expensive.

Numerical example (renting):

• Initial rent: €1,000 / month (€12,000 / year);
• Projection horizon: 20 years.

With inflation_annuelle = 1% (used as a proxy for rent growth):

• annual rent after 20 years ≈ 12,000 × (1.01)^20 ≈ €14,640;
• total rent paid over 20 years ≈ 12,000 × 22.0 ≈ €264,000 (geometric series approximation).

With inflation_annuelle = 3%:

• annual rent after 20 years ≈ 12,000 × (1.03)^20 ≈ €21,600;
• total rent over 20 years ≈ 12,000 × 26.9 ≈ €322,800.

Just by changing the inflation simulator setting from 1% to 3%, the cumulative rent bill increases by almost €60,000 over 20 years. That alone can flip the result of your buy or rent analysis.

2.2. For owners: fixed nominal payments, but rising side costs

If you buy with a fixed‑rate mortgage (~3.6%), your monthly payment is fixed in nominal terms (excluding insurance and charges). But in real terms, it shrinks over time if inflation is positive.

Numerical example (mortgage payment):

• Monthly payment: €1,200;
• inflation_annuelle: 3%.

In today’s purchasing power, in 20 years the real value of this payment is:

• ≈ 1,200 / (1.03)^20 ≈ €665;
• your nominal salary might rise with inflation, but the payment stays at €1,200 in nominal euros.

However, other owner‑specific costs increase with inflation too:

• property tax: currently anywhere between roughly €450 and €5,000+ per year depending on city, with annual reassessment;
• renovation and maintenance: materials and labor often follow or outpace inflation;
• condo or building fees: energy, cleaning, services become more expensive;
• home insurance: premiums are regularly adjusted.

The buy or rent simulator uses the inflation simulation parameter to grow these costs over time. Underestimating inflation makes homeownership look cheaper than it really is in the long run.

2.3. For renters who invest the difference

If you keep renting instead of buying, you can invest the capital you don’t tie up in the purchase (down payment, notary fees, initial works). This is the investment rate in the simulator (for example 4–6% net on a diversified ETF portfolio over the long term).

Here, inflation eats into your real return:

• investment rate = 5%;
• inflation_annuelle = 2%;
• real return ≈ 3%.

If you invest €50,000:

• nominal value at 5% over 20 years: ≈ 50,000 × (1.05)^20 ≈ €132,600;
• real value at 3% over 20 years: ≈ 50,000 × (1.03)^20 ≈ €90,300 (in today’s money).

In a buy or rent simulator, ignoring inflation would mean comparing €132,600 nominal to costs implicitly thought of in today’s euros. That’s misleading. Correctly setting inflation_annuelle keeps the comparison consistent.

3. How inflation interacts with other simulator parameters

3.1. Inflation and the loan rate (~3.6%)

The loan rate reflects the current cost of borrowing. It is influenced by:

• expected inflation;
• central bank policy;
• bank risk premiums.

In the simulator, if:

• loan rate = 3.6%;
• inflation_annuelle = 2%;

then the real interest rate is roughly 1.6% (3.6 – 2). Borrowing at 1.6% real is relatively cheap. But:

• if inflation_annuelle = 0.5%, real rate ≈ 3.1% → debt is much heavier in real terms;
• if inflation_annuelle = 4%, real rate becomes negative (3.6 – 4 = –0.4%) → you repay in money that loses value faster than the cost of the loan.

The inflation simulation parameter therefore changes the real profitability of leverage, and can shift the buy or rent outcome.

3.2. Inflation, notary fees and agency fees

Notary fees (around 7–8% on existing property, 2–3% on new build) and agency fees (often 3–5%) are paid upfront in today’s euros. Inflation does not erase them, but:

• the higher inflation is, the smaller their relative weight becomes over time;
• the longer you hold the property, the more these fixed entry costs are “spread out.”

In a scenario with inflation_annuelle = 3% and a 25‑year holding period, these fees matter less in real terms than in a scenario with 0.5% inflation and resale after 7 years. The inflation setting therefore changes how punitive transaction costs look in your buy or rent simulation.

3.3. Inflation, property tax and its annual revaluation

Property tax tends to grow faster than general inflation because:

• tax bases are periodically updated;
• local authorities can change tax rates.

In the simulator, you usually specify:

• starting property tax (for example €1,200 / year);
• annual property tax increase (for example 3–4%).

The inflation simulator setting acts as a macro benchmark: if you set 1.5% inflation and 4% property tax revaluation, you are modeling a tax that grows much faster than other prices, which penalizes ownership in the buy or rent comparison.

4. Full examples: what happens when inflation is mis‑set

4.1. Scenario A: underestimating inflation (1% instead of 3%)

Common assumptions:

• Property price: €300,000;
• Existing home, notary fees 8% → €24,000;
• Agency fees: 4% → €12,000;
• Initial renovation budget: €20,000 (compliance + energy rating upgrade);
• Down payment: €80,000;
• Mortgage: €276,000 at 3.6% over 25 years;
• Borrower insurance: 0.3%;
• Equivalent rent: €1,200 / month;
• Investment rate: 4% net;
• Starting property tax: €1,200; annual increase: 3%.

Scenario A1: inflation_annuelle = 1%

• rents grow slowly → renting remains “cheap” over time;
• the real weight of the mortgage falls only slightly → debt remains heavy;
• investments earn a real return ≈ 3% (4 – 1);
• property tax at +3% / year grows much faster than overall prices → strong penalty for ownership.

The buy or rent simulator might show renting as clearly superior over 20 years, especially if the renter invests the savings.

Scenario A2: inflation_annuelle = 3% (more realistic over 20 years)

• rents grow quickly (+3% / year) → the total cost of renting is much higher;
• the real weight of the mortgage shrinks significantly over time → most of the effort is front‑loaded;
• the real return on invested savings drops to ≈ 1% (4 – 3);
• property tax still grows, but so does everything else, so its relative weight is less overwhelming.

In this second case, the buy or rent result may be more balanced, or even tilt towards buying if the property value at least tracks inflation. Simply changing inflation_annuelle from 1% to 3% can reverse the apparent “winner.”

4.2. Scenario B: overestimating inflation (5% for decades)

Now assume you set inflation_annuelle to 5% for 25 years, while actual inflation falls back to 2%. You are then simulating:

• rents that almost double every 14–15 years;
• mortgage payments that become “almost free” in real terms;
• property tax that explodes in nominal terms but looks light in real euros;
• major works (roof, facade, energy retrofit) that are very costly in nominal euros but underweighted after deflation.

In that situation, your buy or rent simulator will almost always show a massive advantage for buying, because debt is crushed by unrealistically high inflation. This is exactly what you should avoid: an extreme inflation setting turns your simulation into a fantasy scenario.

5. How to choose a realistic inflation setting

5.1. Look at history and central bank targets

In the euro area over the last decades:

• long‑term average inflation (roughly 2000–2020) was about 1.5–2%;
• recent peaks (2022–2023) were above 5% at times;
• the official central bank target is around 2% over the medium term.

For a 20–25 year buy or rent simulation, a central scenario of 2% is often a reasonable starting point. But it is useful to test:

• low scenario: 1%;
• base scenario: 2%;
• high scenario: 3–3.5%.

The strength of a good inflation simulator setting is not to guess the future perfectly, but to frame a range of plausible outcomes.

5.2. Use scenario analysis in the simulator

To really understand the impact of inflation on your buy or rent decision, you can:

• enter your data (price, rent, loan rate, property tax, renovation budget, investment rate, etc.);
• run a first simulation with inflation_annuelle = 2%;
• run a second with 1%, then a third with 3%;
• compare the final gap between buying and renting (net wealth, total cash out, remaining debt).

In many cases you will see that inflation affects the renter’s path (rents plus invested savings) more than the owner’s, especially if your mortgage is fixed‑rate.

6. Limits and caveats: what the simulator cannot forecast

Even with a carefully chosen inflation simulator setting, no tool can:

• predict macroeconomic shocks (crises, sudden rate hikes);
• anticipate local property tax changes city by city;
• foresee future energy regulations and their impact on renovation costs (energy ratings, rental bans, etc.);
• guarantee investment returns on ETFs or savings accounts.

Buy or rent results are therefore scenarios, not promises. The inflation_annuelle parameter is a scenario lever: it answers “what if inflation averages X%?”; it does not claim that this will actually happen.

Important: nothing here is personalized financial advice. These explanations are for educational purposes only, to help you understand how the simulator works.

7. Conclusion: set inflation carefully for credible buy or rent results

Choosing a realistic value for the inflation_annuelle parameter in your buy or rent simulator is crucial because it:

• drives long‑term rent increases and the cost of staying a tenant;
• changes the real burden of a mortgage at around 3.6%;
• adjusts the real return on your investments if you keep renting;
• affects the trajectory of property tax, renovation and maintenance costs.

A poor inflation setting can make renting look artificially attractive, or make buying look unbeatable when it is not. The goal is not to guess the exact future rate, but to explore several realistic scenarios around it.

To go further, use a dedicated tool that integrates all these parameters (inflation, loan rate, property tax, renovation budget, investment rate, rent increases, prepayment penalties and more) so you can objectively compare whether to buy or rent in your own situation.

Want to see how inflation changes your numbers in practice? Simulate your situation on buy-or-rent.net.