Inflation

Definition

Inflation is the general rise in prices over time, which reduces purchasing power. Inflation is why real return can differ from nominal return.

Example

If prices rise 3% per year, a $100 basket costs about $103 next year.

How to use it

• Inflation affects costs, pricing power, and real returns.
• Even low inflation compounds into large real differences over time.
• Use consistent inflation assumptions across scenarios.
• Separate short-term price spikes from long-term inflation assumptions.
• Adjust multi-year forecasts to keep comparisons in real terms.

Common mistakes

• 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.

Why this matters

This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.

Practical checklist

• Write a 1-line definition for "Inflation" that your team will use consistently.
• Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
• Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
• Use a calculator that references this term (e.g., Real Return (Inflation-adjusted) Calculator) to sanity-check assumptions.
• Read the related guide (e.g., Real vs nominal return: inflation-adjusted performance) for context and common pitfalls.

Where to use this on MetricKit