Inflation Rate Calculator
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Inflation Rate Calculator
Inflation is usually measured with the consumer price index (CPI) but also with some other statistical indices. The basket that represents the index contains products and services such as food, clothing, fuel, computers, hairdressing services, and the like. The level of inflation is determined by the change in the value of the basket of products and services over some time. If at the end of the year the total value of the basket is 10% more expensive, then we are talking about an annual inflation rate of 10%.
There are various causes for inflation. One of the more important is the excessive increase in the money supply. When a larger amount of money follows a smaller amount of products and services, an imbalance of the commodity-money relationship occurs, which leads to a logical increase in prices and a decrease in the value of money. For example, if the annual inflation rate is 5%, it means that a product that cost $100 a year ago now costs $105 (price + inflation). So, with inflation, the value of every $ in our wallet is lower.
The Inflation calculator helps us understand how much our money will be worth after a certain period as a result of inflation. It is necessary to follow the next steps:
t is the time elapsed (in years).
Total Inflation is given by the following formula
Total Inflation in percent = ( Final Price − Initial Price Initial Price ) × 100
There are various causes for inflation. One of the more important is the excessive increase in the money supply. When a larger amount of money follows a smaller amount of products and services, an imbalance of the commodity-money relationship occurs, which leads to a logical increase in prices and a decrease in the value of money. For example, if the annual inflation rate is 5%, it means that a product that cost $100 a year ago now costs $105 (price + inflation). So, with inflation, the value of every $ in our wallet is lower.
The Inflation calculator helps us understand how much our money will be worth after a certain period as a result of inflation. It is necessary to follow the next steps:
- Enter the starting and ending years;
- Enter the price of a product at the starting year; This value must be positive;
- Enter the price of a product at the ending year; This value must be positive;
- Press the ”Calculate” button to make the computation.
t is the time elapsed (in years).
Total Inflation is given by the following formula
Total Inflation in percent = ( Final Price − Initial Price Initial Price ) × 100
What is the term inflation?
Inflation is one of the most important economic concepts and represents a general increase in the prices of products and services within an economic area (the phenomenon of price growth). Inflation is the rate at which prices of products and services have increased over a while. Due to such a phenomenon, the purchasing power of the population in the country is decreasing. Precisely because of inflation, money has its time value of money. This simply means that due to rising prices, the value of money decreases over time. Namely, with inflation, an individual can no longer buy the same amount of products and services with the same amount of money as he could a month or a year ago. There are 3 categories of inflation:
- moderate inflation;
- galloping inflation;
- hyperinflation.
Inflation in the financial context
The money we earn or save is usually kept in a bank account or entered by buying a property. We usually have an interest rate on our account, so our savings increase in the future compared to the initial amount. For example, if we have 1, 000inasavingsaccountwith3%interest, wewillhave 1,030 in the account after one year. During the year, the general price level changes, which di- rectly affects the real value of your money. Although we have $ 1,030 in our account, they will be worth a little less than a year earlier. If the inflation rate, e.g. 2%, then the real value of the money in our account is only $ 1,010.
The conclusion follows that the nominal interest rate is not the best basis for estimating the real value of our profit. It is better to use an inflation-adjusted rate or a real interest rate. Unlike savings when we borrow money, inflation can be on our side, depending on the real interest rate. If the inflation rate is higher than the interest rate, the money we owe over time will be worthless. But if there is deflation, our debt may increase.
The conclusion follows that the nominal interest rate is not the best basis for estimating the real value of our profit. It is better to use an inflation-adjusted rate or a real interest rate. Unlike savings when we borrow money, inflation can be on our side, depending on the real interest rate. If the inflation rate is higher than the interest rate, the money we owe over time will be worthless. But if there is deflation, our debt may increase.
Hyperinflation
By definition, the notion of hyperinflation, as one of the forms of inflation, in the economy and finance, is a situation characterized by a fall in the value of the monetary currency with the so-called simultaneous galloping rise in prices of goods and services. So, the essence is that hyperinflation is uncontrolled inflation (which is by definition an increase in the general or broad price level).
The concept of hyperinflation in the economy and banking and finance in general
Hyperinflation is a state in which inflation is higher than 50% monthly (although today ”spears are being broken about theories that the state of hyperinflation can be made official even when the monthly inflation rate is higher than 20% or 30%), and it is stated that four reliable signs of hyperinflation are the following:
The concept of hyperinflation in the economy and banking and finance in general
Hyperinflation is a state in which inflation is higher than 50% monthly (although today ”spears are being broken about theories that the state of hyperinflation can be made official even when the monthly inflation rate is higher than 20% or 30%), and it is stated that four reliable signs of hyperinflation are the following:
- When the population tries to keep the property they own either in the form of a foreign currency or in ”non-monetary form” while trying to spend all funds in domestic currency as soon as possible because it follows the upward trend in prices and fears a loss in domestic value money and until the decline in purchasing power, and reserves are created;
- The prices of goods and services, although certainly expressed in domestic currency, are converted and calculated according to the stable country, and the goods are paid in do- mestic money, to consume it as soon as possible so that it does not become even more destabilized;
- Inflation reduces the value of purchases ”in installments”, so it is increasingly common for people to buy everything on a deferred basis, on checks, because with the decline in the value of the currency, there is a decline in each subsequent installment;
- The price index to which wages, interest rates, and prices of goods and services are linked, as well as the cumulative inflation rate, reach 100% of the value within at least three years.