Inflation Rate

Overview

Engineering reference data for Inflation Rate in economics.

Key Formulas

Present Value

$PV = \frac{FV}{(1+r)^n}$

Discount a future value to present.

Net Present Value

$NPV = \sum_{t=0}^{n} \frac{C_t}{(1+r)^t}$

Sum of discounted cash flows.

Compound Interest

$FV = PV(1+r)^n$

Future value with compound interest.

Variables

Inflation and Deflation

Inflation describes a general increase in prices, which decreases the purchasing power of money over time. Deflation is the opposite—a decrease in the general price level, which increases the value of money over time. Both phenomena affect the real value of future cash flows.

Advanced Formulas

For periods with variable inflation rates, the future value $F$ of a present amount $P$ is calculated as:

$$F = P (1 - i_1) (1 - i_2) \cdots (1 - i_n)$$

Where $i_1, i_2, \ldots, i_n$ are the inflation rates for each period.

The equivalent average inflation rate $i_a$ over $n$ periods, representing the uniform rate that would yield the same future value as the sequence of variable rates, is found by:

$$(1 - i_a)^n = (1 - i_1) (1 - i_2) \cdots (1 - i_n)$$

Solving for $i_a$ gives:

$$i_a = 1 - \left( (1 - i_1)(1 - i_2)\cdots(1 - i_n) \right)^{\frac{1}{n}}$$

Interactive Charts

References

• Original Source