Inflation Calculation

[Bert45]

I'd like to know what £1000 20 years ago would be equivalent to today. I've been online, of course, but the calculators don't give me what I want to know. To be clear, what I want to know is the value of £1000 in 1998 in todays's terms. This is not the same as asking how much would I need today to buy the same as I could buy for £1000 in 1998. I would obviously need more, but I want a figure that is less, as money is worth less today than it was in 1998.

[bhg481]

If I understand you correctly, what you are looking for is the sum of money that you need to have had in 1998 that would be worth £1000 now.
You say you have found calculators online. Start with £1000 in 1998 and see what value it has now - let's say it's £2300. If you had £1000/2300 in 1998 it would be worth £1000 now.

[JF85]

If you have a figure in mind for average inflation, say 5%, the original £1000 would now be £2000 (£50 each year for 20 years). Working backwards would be more complex though. After a few year she the nett amount lost would decrease each year as the total shrank. You would lose £50 in the first year, £47.50 the second year, £45.13 the third.

There is probably a formula but my gues would be around £600.

[chrissa1]

https://www.thisismoney.co.uk/money/bills/article-1633409/Historic-inflation-calculator-value-money-changed-1900.html

[chrissa1]

£1732.81.

[Buenchico]

The answer to your question would seem to rely upon using the mathematical inverse operation to establish an answer. This site, for instance, suggests that to buy the same goods in 2017 as you could buy for £1000 in 1998 would have cost you £1,673. (2017 is the latest year which the calculator has data for):
https://www.measuringworth.com/calculators/ukcompare/index.php
As annual UK inflation currently stands at 2.7%, let's add on that amount to get a figure for 2018, which is then £1718.

That tells you that to go from 1998 prices to 2018 ones you need to MULTIPLY by 1.718. Therefore to work back the other way (which is what your question demands) you need to DIVIDE by 1.718.

£1000 ÷ 1.718 = £582, which is the answer you require.

Note though that those figures are based upon using RPI, which has largely been discredited as a true measure of inflation. My link offers alternative ways of assessing inflation. Whichever measure you use though the mathematical technique is still the same. (i.e. work out what you need to MULTIPLY £1000 by to get from 'old' prices to 'new' ones and then DIVIDE £1000 by that figure instead).

[Guilbert53]

Nothing to do with your question but......

My father bought a large 5 bedroom detached house in Pinner in 1966 and he paid about £9,500 (nine thousand, five hundred) for it.

After my father and mother had died we sold the house in 2012 for £800,000 (eight hundred thousand pounds!)

Hows that for a great place to invest your money!

I wish I had known I would have bought more houses back then ! (mind you I only earned a few hundred a year back then).

(The house he sold in Fulham to buy the house in Pinner sold for about £5000 (five thousand) in 1966 and it is now worth over a million!

[Old_Geezer]

Fine if you had money to invest. But how much is due to location, and how much the building ? Plus it's a paper gain only unless you downsize your home. And if the population ever got under control and reduced in size, demand would fall and any gain, lost. Credit overbreeding and net immigration for price rises.

[dance2trance]

It ranges from £1,437.00 to £2,060.00.

[Rev. Green]

JF85 says "If you have a figure in mind for average inflation, say 5%, the original £1000 would now be £2000 (£50 each year for 20 years)."

Most people would leave the £50 interest to compound, giving about £2650, depending on the frequency of compounding.

[fiction-factory]

I think there is a lack of clarity about what is being asked here. Soem answers are suggesting what it would cost now to buy the same basket of goods as was bought in 20 years ago. As I see it bert has said that's not what he wants. Even if he did the use of RPI (nor CPI) is not particularly reliable as the basket of goods in 20 years ago may have contained VHS tapes and cardigans whereas today's would need itunes/amazon prime prices and hijabs.
I'm pretty sure Bertie wants to know what its purchasing power would have fallen to. but that depends onw hether it was kept under a mattress or invested in a bank account or shares, for example

[Bert45]

fiction-factory said: "I think there is a lack of clarity about what is being asked here." No, I don't think so. I was quite clear about what I wanted, but several people have misunderstood and given a figure higher than £1000, whereas I clearly said I wanted a figure lower than £1000.
"Some answers are suggesting what it would cost now to buy the same basket of goods as was bought in 20 years ago. As I see it bert has said that's not what he wants. Even if he did the use of RPI (nor CPI) is not particularly reliable as the basket of goods in 20 years ago may have contained VHS tapes and cardigans whereas today's would need itunes/amazon prime prices and hijabs." Good point, but whoever works out the RPI or CPI over several decades must have a way of allowing for changes to the "basket of goods"
"I'm pretty sure Bertie wants to know what its purchasing power would have fallen to..." yes " ... but that depends on whether it was kept under a mattress or invested in a bank account or shares, for example." No. There is no mention of investing in a bank account or shares. Essentially, it is what would £1000 buy today if it had been left under the mattress for 20 years. It's very theoretical thing. If you bought a computer 20 years ago, you could buy something much better for less than £1000 today, so the 'value' of £1000 has gone up in terms of technology, but down in terms of bricks and mortar.

[fiction-factory]

Thanks. I agree that most misunderstood what you were asking for. That's fine. So Buenchico's answer covers it if the money were kept under a mattress- although I can't imagine how that would have arisen. (Money found under floorboards /in a loft? I remember when Lofty found loads of old £20 in his new loft when he moved in)

[Peter Pedant]

.You not crazy
ABers crazy - they not read question - (flipping out of inarticulate AB speak)......

You are really asking about the future discount value and if you google something like that
you will get the simply awful AAT site on
"net present value"

suppose you have a machine and you are repaying it at £100 / y ( cheap machine ) then the income is real stuff in that year but your repayment is discounted down

income first year - £250 - repayment £100
second year inc - £355 ( say) repayment £95
discounted at 5%
third year inc 233 say repayment now £92.5 - discounted twice at 5%
( and the whole shebang allows you to tell if it is a good deal or not)

so Buen Chico calcualtion is correct but forget the "inverse calculation crap" -
it would be 1000/1.673 - if the inflation figures given are correct - am I right is that £600 ? [ whatever one over one and two thirds is]

This is commonly done in accountancy ( where I failed all my exams - I put THAT at the quite terrible AAT's door) in the area called net present value calculations. Clearly I understood that bit.

If you are involved in CGT calculations - they did do the rebasing as you wanted and charts were available - but now that has stopped and you use the value at the year in which you bought.

In an exam they give you the discounted rate which accounts ( ha! ) that everyone is making a dogs ear of this - I will see if there are any charts out there in cyberspace


https://www.professionalpensions.com/professional-pensions/opinion/3033124/death-by-discount-rate-the-fundamental-flaws-of-the-accounting-approach-to-pension-scheme-valuation

https://www.aatcomment.org.uk/calculating-net-present-value/

[Peter Pedant]

// It's very theoretical thing. If you bought a computer 20 years ago, you could buy something much better for less than £1000 today, so the 'value' of £1000 has gone up in terms of technology, //

nope - you can allow for that with a basket of thingeys
( 4 apples, 2 computers and 1/2 a house)
see accountancy bean counting courses

OR you can value in your fave currency which is unchanging. Mars Bars apparently are a favourite. Yes people really do do this. worffa 1000 mars bars then and now - gawd as Nigh might say.

Incredibly in the year you mention 1998 I got a tax rebate that allowed me to buy - - a house. Seems incredible to say it now ....

[Peter Pedant]

from the AAT site:
The general formula here is:

NPV = C / (1 + r)^t

Where C is cash in time t (where t=0 is the current month, t=1 is next month, and so on) and r is the interest rate (in our case 5%) of the alternative.

If we go back and apply this to our friend’s business proposal where she asked for £350, we can draw up this table: blaah blaaah blaaah yappity yappity yap

remember here - it is a future calculation so you guess the discount rate ( 5% is usual )

[fiction-factory]

yes, mars Bars are often quited as the standard - but does that take account of their size as they seem smaller than when I was a child (or was it just that my hands and mouth were smaller?)

[Peter Pedant]

more of what you were talking about here

https://obr.uk/box/discount-rates/

very well put I thought

[fiction-factory]

yes,PP, GCSE Maths (higher tier) stuff - easy to do (if you remember the rule) on a standard calculator now although usually there would be asimplification such as 3% pa (compound)every year. A similar question came up on the mocks last week

[fiction-factory]

Lots of questions from pupils wondering what per annum meant- thought it was something rude from their pronunciation