Australia Understanding Inflation as confused

Joined
Jul 9, 2015
Messages
3
Reaction score
0
Country
Australia
Hi Guys

Im studying accounting at Uni and am confused with inflation.
-Example:
$100K you have. Over 20 years average inflation rate 2.7% and total basket of good increase to about 170K. So about a 70% increase in monetary value. eg 100K in says 1995 now about 170K in 2015.
-But after doing some checks on the inflation calculator, it doesn't neccerialy mean that 100K in 2015 is now 30K in 1995, that is what confuses me. Then when you go backwards you don't simply always minus 70K. For example in Australia 100K in 2015 was about 60K in 1995. But when you do 100K in 1995 it's now about 170K, today. Just confused how inflation and all that works, and why when you look back it isn't the same number "monetary drop" as when you look forward.
And also with price increase, you increase say 2.5% on the new price each year. So say you start with $1 dollar, and add 2.5% it's now $102.50, then the 2nd year 2.5% of 102.50 which is the new price, not 2.5% of $1.
I just find inflation confusing. Could anyone clarify my summary a bit, and why when we look back as cost-[rice it's not the same as looking forwards. I find inflation a confusing topic I've been studying. Especially when doing assignments and trying to work-out in real-terms the value of money.
 

Triest123

VIP Member
Joined
Feb 12, 2012
Messages
269
Reaction score
51
Your thinking neglect the compounding effect of the inflation rate
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top