# Adjusting for inflation (is it possible that real $exceed nominal terms) 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?

## 1 Answer

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