<p>It should be <code>(Nominal Price for Selected Year)*((Index of base year)/(Index of selected))</code></p>

CC BY-SA 4.0
2022-01-07T21:28:48.547Z
2022-01-07T21:28:48.547Z
James Wattam
<p>I have adjusted the following data to inflation, and I am confused as my real figures are higher than my nominal terms, but I always assumed that adjusted for inflation figures would be lower (i.e. taking into account price increases over time).</p>
<p>Here is how my nominal data looked like:</p>
<pre><code>year  nom_income   inflation_rate_decimal
1970  100         .028
1971  102          .04
1972  140          .03
</code></pre>
<p>I then created a CPI/index as follows:</p>
<p>CPI/index=(1+inflation rate)*100</p>
<p>So with the baseline year, 1970, it would be (1+ .028)*100=102.8</p>
<p>Then for other years=
(1+inflation rate)*last year's CPI</p>
<p>So for 1971 it would be:
(1+.04)*102.8= 106.912</p>
<p>Finally, to get inflation-adjusted figures, I did the following:</p>
<pre><code>(Nominal Price for Selected Year)*((Index of year selected)/(Index of base year))
</code></pre>
<p>And the equation would be:
1970= (100)*(100/100)= <span class="math-container">$100 
1971= (102)*(106.912/100)= $</span>109.1</p>
<pre><code>year  nom_income   inflation_rate_decimal    CPI/index       real_income
1970  100           .028                      102.8           $100 
1971  102           .04                       106.912         $109.1
</code></pre>
<p>Is this the correct approach to adjust for inflation?</p>

<macroeconomics><microeconomics><econometrics><inflation>
Adjusting for inflation (is it possible that real $ exceed nominal terms)
nesta13
# Adjusting for inflation (is it possible that real $ exceed nominal terms)

(Asked by: username_0 on 2021-11-30)

I have adjusted the following data to inflation, and I am confused as my real figures are higher than my nominal terms, but I always assumed that adjusted for inflation figures would be lower (i.e. taking into account price increases over time).
Here is how my nominal data looked like:
year  nom_income   inflation_rate_decimal
1970  100         .028
1971  102          .04
1972  140          .03

I then created a CPI/index as follows:
CPI/index=(1+inflation rate)*100
So with the baseline year, 1970, it would be (1+ .028)*100=102.8
Then for other years=
(1+inflation rate)*last year's CPI
So for 1971 it would be:
(1+.04)*102.8= 106.912
Finally, to get inflation-adjusted figures, I did the following:
(Nominal Price for Selected Year)*((Index of year selected)/(Index of base year))

And the equation would be:
1970= (100)*(100/100)= $100 
1971= (102)*(106.912/100)= $109.1
year  nom_income   inflation_rate_decimal    CPI/index       real_income
1970  100           .028                      102.8           $100 
1971  102           .04                       106.912         $109.1

Is this the correct approach to adjust for inflation?

**Tags:** macroeconomics, microeconomics, econometrics, inflation

---

## 1 answers

### Answer by username_1 on 2022-01-07. Score: 1 | Accepted answer

It should be `(Nominal Price for Selected Year)*((Index of base year)/(Index of selected))`


---

