ABSTRACT This study develops the concept of Cultural Inflation —a tourism‐driven rise in the cost of living for residents that outpaces their income in heritage destinations—and examines whether cultural reinvestment can restore the resident's welfare. Using panel data from 48 Sardinian municipalities (2010–2025), we estimate how the intensity of tourism and short‐term rental (STR) density affect housing, food, and transport prices through fixed‐effects models and project outcomes to 2035 using a Dynamic Cultural Inflation Simulation. The results show that tourism operates as a localized demand‐pull inflation driver (β 1 = 0.43 for tourism intensity; β 2 = 0.31 for STR density). Under Business‐as‐Usual, price pressures intensify and residents' welfare declines. Under a Cultural Sustainability Scenario—combining moderate growth, STR control, and sustained reinvestment—costs stabilize and welfare improves. Dynamic simulations indicate that heritage reinvestment reduces cumulative tourism‐induced price growth by approximately 40% relative to Business‐as‐Usual. These findings reconceptualize tourism as a cultural‐economic distortion system rather than a linear growth engine and introduce the Net Cultural Balance (NCB) as a welfare‐based policy metric for aligning the growth in tourism with residents' well‐being and cultural vitality.