Let’s assume a monthly Universal Basic Income (UBI) payment of \$1,000 and an annual inflation rate of 2%. I would like to understand what would happen to the real value of this UBI (its purchasing power) in terms of year-zero prices each year for say 20 years. Namely, how much the original \$1,000 worth after 5,10, and 20 years? This is the link to a google spreadsheet - I hope that I did the calculations right.
My questions are: How to calculate the real value of the UBI in each year in terms of year-zero prices if there is NO INDEXATION? Obviously, the real value must decrease due to inflation, but I would like to see what is left from the original purchasing power of $1,000 in years-zero every year for 20 years.
This is what I have done in the Excel file attached:
The Column “Real Value” represents the purchasing power of the nominal (NOT indexed) UBI of 1,000 dollars. Is it correct?
The Column “Inflated Value” represents the INDEXED UBI, namely the UBI than would maintain the real purchasing power of the original $1,000 despite inflation. It is correct?
If the calculations are correct, why then the loss to inflation is lower (and decreasing) than the amount of yearly compensation by indexation which is also increasing? What is the logic and intuition behind this?
Thanks a lot!