Forum Discussion
How to Account for Inflation
Thanks Mathetes! I hope you had a great summer of kayaking!
Sorry, I attempted attaching an excel file. Not sure why it did not work. Let me know if it attaches this time.
My actual worksheet is very much like the one you attached, but my attachment is a simplified version.
Using the example you attached, I'm looking to apply inflation to each year's EOY Bal to answer the question, "what will be the buying power of each year's EOY Bal, given X percent inflation each year. In my attached, I reference a cell that is set to 3%, but can be changed, as you suggest.
Hi,
Try this formula in cell C4:
=B4 * BYROW(SEQUENCE(ROWS(A4:A23),, 0), LAMBDA(a, (1 + C1) ^a))
Hope this helps.
IlirU
Thanks IlirU, but wouldn't inflation diminish the value of the balance each year, not increase it? My assumption is that in 2026, $114,910 is not going to buy as much as $114,910 would buy today. Because of inflation, it will buy what, say, $110,000 would buy today. And $176,560 is not going to buy as much in 2044 as it would buy today.
scrail2004 What I don't understand about your spreadsheet is where the numbers in Column B come from. On what basis are they "growing"? Does that reflect interest or investment income?
In any event, and I suspect this is what IlirU is also getting at with his version, where the year end balances increase in step with inflation: What he's done, what I've done in my first response, is simply show (it's all an estimate, of course) what it would take to continue to have the same buying power, given inflation.
You seem to be wanting the converse--but that's all it is--asking what would be the buying power of $XXX,XXX when it remains basically static and therefore diminishing in value. But you confuse the picture--or at least you confuse me--by having your column B increase at very arbitrary rates, varying from slightly over 2% to well under .1%.
It's possible that you'll find a satisfactory answer using the FV function, as I've done in the attached. If that's not what you are looking for, then please clarify further.
