[OT]Help math question

[Graf]

The year is 1990 - I tell Mr. Johnson, my HS math teacher, that math is stupid and I won't study it. I follow through on my vow and 13 years later I'm still kicking myself.

So I'm stumped on a simple(?) math problem and confident someone has the answer.

I'm working on a spreadsheet for work where I need to reverse out inflation on a number. Unfortunately I don't have a deflator number (ok, it's been a while since economics I forget what they're called) I only have the percentage rise.

So I have a period where an index rose from 5 to 10. During that period there was also 6% inflation. I want to back out inflation. So to figure out what the number at the end of the period (10) is worth I need to get rid of the inflation by multiplying by a number. I've done this one by hand and I think its around 94.5 (about a 5.5% drop). But I'm not really going to do this for every number in question.

So what is the formula that explains the relationship between 6 and 5.5% generally?
For bonus points, and to complete my humiliation, what grade* do most people learn the answer to this kind of problem?

*feel free to insert your educational ranking system of choice. Ideally with age for those of us who only know the American system....

 

[nsruf]

If r is your inflation rate, you have to divide the number at the end of the period by (1+r) to get rid of inflation. For a n-period model, simply divide by (1+r)^n.

Example: Inflation is 6%, so r = 0.06 and you have to divide by 1.06, which works out to multiplying by approx 0.943. So your index is worth only 9.43 instead of 10 after accounting for inflation.

I am not sure at what grade this stuff is taught, though

 

[Graf]

Thats brilliant.
Thanks!

 

[MarauderX]

btw, don't feel retarded, we never had this at my HS even in the honors program. Maybe I was sick that day, but I didn't see it until I had to take my 1 economics class in college.

 

[DaveStebbins]

Yeah, if inflation is 6% you go forward period-to-period by multiplying by 1.06 and you go backward by dividing by 1.06 or multiplying by 1/1.06 = 0.9434.

As a semi-related side-note, I was very pleased last month to see that my daughter's middle school (grades 6-8) curriculum has replaced the old Home Economics classes (which primarily taught cooking and sewing) with classes called Family Consumer Science which will be teaching some of the basic living skills, like balancing a checkbook, that were never taught when I was in those grades back in the ...errm... 1970s.

-Dave

 

[Agback]

As a semi-related side-note, I was very pleased last month to see that my daughter's middle school (grades 6-8) curriculum has replaced the old Home Economics classes (which primarily taught cooking and sewing) with classes called Family Consumer Science which will be teaching some of the basic living skills, like balancing a checkbook, that were never taught when I was in those grades back in the ...errm... 1970s.

I got taught all that stuff: how to reconcile a bank statement, how to fill out a tax return, how to write a cheque, how to read a balance sheet, how to avoid the usual traps in buying a second-hand car, how to get insurance, what life insurance is, how a mortgage works, how hire purchase works, etc. etc., in a subject called 'Commerce'. That would have been about 1977-79.

I never could make out why some people were allowed to get out of Commerce (and do Home Science instead): not that I have any problem with people learning to cook and launder.

Regards,



Agback