Inflation

Measured as

Measure Inflation with the same date, unit basis, and accounting or policy definitions used in the rest of your model.

Misused when

• Assuming inflation is zero in long-term planning.
• Mixing nominal and real rates in the same model.
• Using national inflation rates for local cost structures without adjustment.
• Forgetting that wage inflation can differ from overall CPI.

Operator takeaway

• Inflation affects costs, pricing power, and real returns.
• Even low inflation compounds into large real differences over time.
• Use consistent inflation assumptions across scenarios.
• Tie Inflation to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
• Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.

Next decision

• Quantify the impact with Real Return (Inflation-adjusted) Calculator if you need to turn the definition into an operating assumption.
• Read Real vs nominal return: inflation-adjusted performance if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.