Consumption and inflation

Submitted by marklewis on Sat, 01/07/2017 - 20:27

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Consumption and inflation

My model shows a consistent consumption level each year but I want to make sure I understand what this truly represents. If I can consume $80,000 per year for the next 30 years has this consumption level been adjusted for inflation? $80,000 in 2017 dollars would have much less buying power in future years and I'm not sure if the model is accounting for this or not.
Thanks,
Mark

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dan royer's picture

dan royer

Sat, 01/07/2017 - 21:13

Hi Mark, The way to

Hi Mark, The way to understand this is that your consumption is denominated in 2017 dollars which is $188,525 in nominal dollars 30 years from now at 3% inflation environment. Presenting it in "real" terms this way allows you to see that your purchasing power holds steady through the years. If you have a mortgage, you might take a look at your mortgage rate at a fixed interest rate (in the Housing report). It is going down in real terms because you are paying off with cheaper dollars each year.

Everything in all the reports is presented in current year dollars.

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