Return on Software: Maximizing the Return on Your Software Investment

Purchasing Power and Inflation

Inflation means that the purchasing power of money is going down. The inflation rate and the drop in purchasing power are closely related, but aren't exactly the same. Inflation means that the same amount of money later on doesn't buy as much as it did before; the inflation rate measures how much more money is needed to buy the same thing later. Purchasing power is a way of saying, “How much can I buy for a given amount of money?” Around 1970, a candy bar typically cost about 25 cents. Using the Consumer Price Index data in Table 13.1, inflation means the same candy bar would probably cost about $1 in 1997. From the point of view of purchasing power, $1 in 1970 would have bought four candy bars but only one candy ...