How to Calculate Future Cost of Goods Using Inflation Rates
Businesses calculate the future cost of goods to set prices, to buy goods when prices are low and basically to save them money. You don't have to be a business to need this type of calculation. Anyone planning for retirement should be able to make a rough estimate on how much household goods cost in future.
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Instructions
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1
Decide what you think is a reasonable average for inflation rates. Inflation averages have varied tremendously over the years. Three percent is usually used for an average cost of living inflation rate. If you want to find specific products or services, note that some increase faster than others. Medical costs and education go up faster and home electronics and appliances go up slower.
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2
Use the rule of 72 to find the future cost of goods. The rule of 72 is usually used to find out how long it takes for money to double at a specific interest rate.
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3
Divide the number you chose as an inflation rate, as a whole number, not a decimal, into 72. The product is the number of years that it takes for that item to double in price.
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4
Decide how many years in the future you need to calculate the price. Divide the number of years it takes to double into the number of years in the future.
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5
Realize that there is one more step to take. You should have a whole number and a fraction. Let's say you have a product from the last division of 1.25. If you are trying to figure out how much money $100 will be worth in 30 years and 3.42 is the number of times it has doubled. Double $100 three times. Multiply it by 1 plus the number after the decimal point. In this case it is 1.25. So something that costs $100 dollars today costs $250 in the future.
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6
Work with a hand calculator and the interest rate to figure out fewer years. To find the future cost of goods, simply multiply the number by 1 plus the inflation rate changed to a decimal, such as 3 percent. Put $100, for example, into your calculator and multiply that number by 1.03. Multiply that answer by 1.03 a second time if you want 2 years of inflation. If you want 5 years of inflation multiply the answer three more times.
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Comments
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acscdean
Feb 12, 2009
In Steps 3 and 5, the term "product" is potentially confusing. If the intended meaning is simply the *result* or *answer* from the division of one number by another, as performed in these steps, either of those more general words would be better to use here. The potential for confusion is that, in mathematical terminology, a "product" is the result of *multiplying* 2 or more numbers together. Because Steps 3 and 5 involve dividing one number by another, not multiplying them, the correct mathematical term for the result is "quotient." -
acscdean
Feb 12, 2009
In Steps 3 and 5, the term "product" is potentially confusing. If the intended meaning is simply the *result* or *answer* from the division of one number by another, as performed in these steps, either of those more general words would be better to use here. The potential for confusion is that, in mathematical terminology, a "product" is the result of *multiplying* 2 or more numbers together. Because Steps 3 and 5 involve dividing one number by another, not multiplying them, the correct mathematical term for the result is "quotient."
