how to calculate inflation over 9 years on a fixed monthly figure?

Answer 1

I assume you are trying to work out NPV (Net Present Value) ...

Assuming we are looking forward into the future .. well 'money tomorrow' must be worth less than 'money today' ... NPV works out 'how much' less ..

Looking forward 9 years means making a wild guess about the rate of Inflation over the next 9 years. All you can do is set minimum's and maximum's and hope that the actual result will be somewhere in between :-)

In UK, I believe the 'target' rate is 2.5% ? However the BOE dosn't seem to good at holding to that - lets assume 3% .. but it's going to be really difficult to set a max. (you could guess, say, 6% ?)

So if you recieve a monthly sum of £100 (for example, a fixed Pension) and Inflation is 3% a year, then next month your money will be 'worth' 0.25% less (3/12). i.e. £99.75p ... the following month the £99.75p will be worth another 0.25% less, i.e. £99.5000626p and so on

If, on the other hand, you are PAYING OUT a fixed sum each month, then instead of monthly RPI (Inflation) you should use the increase in Annual Earnings Index (and apply it annually) - assuming you are paying out from wages.

Now either run the formula or create a spreadsheet with 108 rows (one row for each month for the next 9 years)

Answer 2

What do you have to start with? The start value and the end value?

The aggregated monthly inflation is calculated as

((End value / Start Value)^ 1/n ) - 1 where n is the number of periods

E.g. If you have £10 to start with and end up with £20 after 9 years (108 months) then the monthly interest/inflation is:

((20/10)^1/108) - 1 = 0.0068 = 0.68%

Answer 3

Can i ask why you want to know this?