Let us assume that you got a job in 2015 with a monthly salary of N1 million, I am sorry to inform you that that your salary in 2015 no longer has the same value in 2023 as a result of inflation.
If you want to calculate the present value of your income in 2015, adjusted for inflation, to the year 2023, you will have to account for the effects of inflation over those years. You will use the inflation rate for each year to discount the value. here’s the formula:
1. Determine the annual inflation rates for each year from 2015 to 2023. You can find historical inflation rates for specific years from reliable sources like government economic websites or databases.
2. Calculate the cumulative inflation rate by multiplying (1 + inflation rate of each year) for all the years. For example, if the annual inflation rates were 2% for 2016, 2.5% for 2017, 2.2% for 2018, and so on, you would calculate it as follows:
Use the cumulative inflation rate to adjust the initial value:
Present Value = Initial Value / Cumulative Inflation Rate
So, based on Nigeria’s annual inflation from 2015 to 2023, you have the cumulative inflation rate as (1+0.09) x (1+0.157) x (1+0.165) x (1+0.121) x (1+0.114)x(1+0.1325) x (1+0.1695) x (1+0.1885) x (1+0.267) = 1.09 × 1.157 × 1.165 × 1.121 × 1.114 × 1.1325 × 1.1695 × 1.1885 × 1.267 = 3.597
Now, divide your salary of 2015 by 3.597 to get its present value adjusted for inflation. For income of N1 million per month, it is now worth 1,000,000/3.597 = ₦278,009.
Your ₦1 million is now worth just ₦278,000 in 2023
So, for your income in 2015 to keep up with Nigeria’s inflation rate, you will have to earn 3.597 times of what you earned in 2015.
So, if you were earning ₦1 million in 2015 and now earn ₦2 million, you are actually N1.597 million behind what you used to earn in 2015.
And if you manage to earn ₦3.597 million, you are still on the same spot as at 2015. The only time you can claim to have made progress is if you earn above ₦3.597 million.
Written by @Fort Fnwa (Oct 2023) on Facebook
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Adjusting the writeup to include the 2024 inflation rate as of April which is 33.69%1, that your ₦1 million in 2015 may be around ₦99,000 today.
