Inflation: Will Everything Eventually Become Unaffordable?
At first glance, inflation sounds terrifying: if prices keep rising year after year, doesn’t that mean that one day everything will be so expensive that no one can afford anything? Fortunately, that’s not how modern economies are designed to work. Prices rise, yes, but so do wages, productivity, and in many cases the value of financial assets.
To understand why the world doesn’t simply “price itself out of existence,” it helps to look at both how inflation works and how professionals model the future in tools like Excel. Combining basic economic logic with solid financial modeling skills gives you a much clearer view of what’s really happening and what you can do about it.
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What Inflation Actually Means
Inflation is a general increase in the price level over time. On average:
– A basket of goods and services becomes more expensive each year.
– A unit of currency (for example, 1 dollar) can buy less than before.
But three points are often misunderstood:
1. Inflation is usually gradual, not explosive
In many developed economies, central banks target a moderate inflation rate (commonly around 2% per year). This is very different from hyperinflation, where prices can double in days or weeks and money rapidly loses all value.
2. Nominal prices go up, but incomes usually go up too
Over the long run, wages tend to rise along with – or faster than – inflation, especially when productivity is increasing. What matters is not the sticker price alone, but your purchasing power: how much you can actually buy with your income.
3. Some things rise faster than others
Housing, healthcare, and education often grow faster than the overall inflation rate; some goods (like consumer electronics) may get cheaper in real terms. So inflation is uneven, and that matters for personal planning.
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Will Everything Become Unaffordable?
The scary scenario assumes:
– Prices keep rising
– Wages stagnate
– Productivity doesn’t improve
– No one adapts policy or behavior
In reality, economies are dynamic systems. Several forces push back against the idea that “everything will become unaffordable”:
– Wages and salaries: Employers raise pay over time to attract and keep workers, especially when inflation is visible and labor markets are tight.
– Productivity gains: Technology and better processes allow more output per worker, making it possible to produce more with the same or fewer resources, which helps contain real costs.
– Policy tools: Central banks use interest rates and other instruments to moderate high inflation, while governments adjust taxes, benefits, and regulations.
– Market competition: Businesses that raise prices too far above their costs and value proposition risk losing customers, which constrains pricing power.
Affordability is not static. Your future ability to pay for goods and services depends on:
– Your income trajectory
– Your skills and career choices
– How you invest and save
– How well you plan for inflation
This is where financial modeling, particularly in Excel, becomes extremely valuable: it lets you simulate different inflation paths, income paths, and investment returns so you can see how your financial life might evolve.
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What’s “The Plan” for Inflation?
Most modern economies don’t aim for zero inflation; they aim for low and stable inflation. The informal “plan” looks like this:
1. Central banks target a modest inflation rate
They adjust interest rates and other monetary policies to keep inflation from getting too high (which erodes purchasing power) or too low/negative (which can lead to stagnation and debt problems).
2. Governments adjust policies over time
Pensions, benefits, and sometimes tax brackets are indexed or adjusted periodically to reflect price changes.
3. Labor markets respond
Over the medium to long term, employees negotiate higher wages, or they move to better-paying roles, sectors, or regions. Collective bargaining, minimum wage laws, and competition for talent all help wages track prices.
4. Individuals and firms use financial planning
Households and companies model cash flows, set prices, negotiate contracts, and invest capital with expected inflation in mind.
None of this guarantees a smooth ride, and there are periods when inflation gets out of control or wages lag. But the long-term “plan” is to have:
– Prices rising moderately
– Incomes rising at least as fast for most people
– Assets (like stocks and real estate) potentially outpacing inflation
To evaluate if that holds true for *you*, you need to be able to analyze your own numbers — and Excel is one of the core tools for doing that.
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Why Financial Modeling in Excel Matters in an Inflationary World
Financial modeling in Excel isn’t just for investment bankers. It’s a universal skill for:
– Students trying to understand how inflation will affect their student loans and future salaries.
– Professionals evaluating job offers, promotions, or relocation in different cost-of-living environments.
– Investors modeling how inflation affects portfolio returns, real yields, and long‑term goals.
– Business owners forecasting costs, pricing, and profitability as input prices rise.
By mastering Excel-based financial modeling, you can:
– Project income vs. expenses under different inflation scenarios.
– Compare fixed-rate vs. variable-rate debt in an inflationary environment.
– Simulate long-term savings and investments in real (inflation-adjusted) terms.
– Understand how pricing decisions affect margins when input costs are rising.
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Core Best Practices for Financial Modeling in Excel
To build models that actually help you make decisions about inflation and beyond, professionals follow several key practices:
1. Keep Your Workbook Clean and Consistent
A clear structure makes complex inflation and cash flow models manageable:
– Use separate, clearly labeled tabs (e.g., Inputs, Calculations, Outputs).
– Maintain consistent formatting for dates, currencies, percentages, and assumptions.
– Avoid mixing hard-coded numbers and formulas in the same cells; use input cells for assumptions like inflation, interest rates, and growth.
The goal: when you or a colleague returns to the file months later, everything is transparent.
2. Prefer Simple, Readable Formulas
When projecting future prices, wages, or asset values, it’s tempting to pack all logic into a single, deeply nested formula. That’s a maintenance nightmare.
Instead:
– Break complex logic into multiple helper columns.
– Use clear step-by-step calculations: one column for inflation factors, another for real values, another for nominal values, etc.
– Favor clarity over cleverness. Five short formulas are easier to debug than one overly complex one.
3. Master the Essential Excel Functions
Certain functions are workhorses in financial models:
– INDEX-MATCH (or XLOOKUP in newer versions): Powerful for flexible lookups across large assumption tables.
– Legacy VLOOKUP: Still widely used and important to understand, especially in legacy models.
– Conditional aggregations:
– COUNTIFS – count observations meeting multiple criteria.
– SUMIFS – sum amounts filtered by several conditions (e.g., expenses in a given year and category).
– AVERAGEIFS – calculate average values based on criteria.
– Dynamic data functions:
– UNIQUE – extract distinct items (e.g., distinct product categories).
– FILTER – pull subsets of data that meet specific conditions.
These functions let you structure models where changing a few inflation or growth assumptions instantly updates results across the file.
4. Automate Recurring Tasks
If you repeatedly:
– Update the same reports every month,
– Pull similar data from different periods,
– Adjust the same forecasts for the latest inflation numbers,
then automation pays off. Instead of manually redoing work:
– Standardize input formats and layouts.
– Build reusable templates where you only replace the data.
– Consider using macros or simple scripting once the manual process is clearly defined.
Investing time to automate repetitive reporting prevents hours of tedious adjustments later, especially when you constantly need to revise inflation or rate assumptions.
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Key Resources to Deepen Your Financial Modeling Skills
To move from basic spreadsheets to professional-grade models, many learners turn to structured resources and tools. Some commonly referenced categories include:
Financial Modeling Platforms and References
– Wall Street Oasis – Widely used by aspiring and practicing finance professionals for insights into modeling and industry practices.
– Damodaran Online – Known for valuation frameworks, cost of capital estimation, and market data that feed directly into models.
– Private Equity Bro – Focused more on deal-oriented frameworks, leveraged buyout logic, and advanced transaction modeling.
These platforms help you understand how inflation, discount rates, and growth assumptions are handled in rigorous valuation work.
Structured Courses and Certifications
Several training providers specialize in financial modeling curricula:
– CFI FMVA (Financial Modeling & Valuation Analyst) – Comprehensive coverage of modeling, valuation, and Excel techniques.
– Wall Street Prep – Practitioner-focused training tailored to investment banking, private equity, and corporate finance roles.
– Breaking Into Wall Street – Scenario-driven instruction with an emphasis on real-world deal models.
Formal courses can accelerate your learning curve and give you a systematic foundation.
Excel Add‑Ins That Improve Productivity
Professional analysts often augment core Excel with specialized add‑ins, such as:
– Macabacus – Enhances productivity with shortcuts, auditing tools, and standardized formatting.
– Endex AI – Supports more advanced analytics and automation inside Excel.
– S&P CapIQ – Integrates financial data directly into Excel models for up-to-date market and company information.
These tools make it easier to build and update inflation-adjusted models with current data and scalable structures.
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Learning Through Tutorials, Cases, and Real-World Examples
Beyond structured courses, three additional approaches are extremely effective:
1. Video Tutorials
Platforms like video-based learning sites and professional education portals walk through step‑by‑step modeling for topics like DCF, sensitivity analysis, and scenario planning. Watching someone build a model from scratch is invaluable.
2. Practice Cases
Case-based practice environments (for example, Quantus Finance, often described as similar to coding challenge sites but for financial modeling) allow you to test your skills with progressively more complex tasks: building three‑statement models, integrating inflation scenarios, or evaluating projects.
3. Real Investment Banking Decks
Reviewing anonymized M&A or board-style presentations lets you see how story and numbers connect:
– How inflation assumptions flow into revenue forecasts.
– How cost projections and margins are explained.
– How scenarios are presented to decision makers.
Studying actual decks shows you what stakeholders care about when considering inflation and other macro variables.
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Advanced Excel Tools: Power Query and Power Pivot
As your models become more data-heavy — pulling historical prices, wages, input costs, or multi-year financials — it’s worth going beyond basic Excel sheets.
– Power Query
Ideal when you regularly import data in consistent formats (monthly CSVs, system exports, etc.). You can:
– Clean and transform data automatically.
– Combine multiple files or periods.
– Refresh everything with one click instead of manual copy‑paste.
– Power Pivot
Useful for:
– Building data models with relationships between tables (e.g., transactions, product categories, inflation indices).
– Creating robust pivot tables and dashboards for scenario analysis.
Learning these early makes it far easier to maintain inflation-sensitive models as the volume and complexity of your data grows.
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Asking for Guidance on the Job
If your manager has encouraged you to improve your Excel or modeling skills, use that as an opportunity for targeted learning rather than guessing what’s needed.
A simple, direct approach:
– Reach out by email or, better, a quick call.
– Say something like:
“You mentioned I should strengthen my Excel modeling. Could you share a few typical files or templates we use, so I can focus on the skills that matter most for our work?”
This does three things:
1. Gives you real-world examples aligned with your role.
2. Shows initiative and willingness to learn.
3. Helps you practice on models that already incorporate the assumptions and structures your team relies on, including how they treat inflation, discount rates, and growth.
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Using Modeling to Make Inflation Less Scary
When you combine a realistic understanding of inflation with strong Excel skills, the topic becomes less about fear and more about planning. For example, you can:
– Build a personal financial plan that:
– Assumes different inflation rates (e.g., 2%, 4%, 6%).
– Projects income growth based on likely career paths.
– Models saving and investing patterns to see how your real wealth evolves.
– Analyze major life decisions:
– Rent vs. buy housing under different inflation and interest rate scenarios.
– Fixed-price vs. inflation-linked contracts.
– Whether to prioritize paying off low-interest debt or investing more.
– Stress-test your assumptions:
– What if inflation is higher than expected for five years?
– What if wage growth lags for a while?
– How resilient is your plan?
Instead of asking, “Will everything become unaffordable?” you start asking, “Under what conditions do I stay ahead of inflation, and what can I change to improve my odds?”
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The Bottom Line
Inflation does mean that prices trend upward over time — but economies, policies, companies, and individuals adjust. The real challenge is not that “everything will be unaffordable,” but whether your own income, skills, and assets keep pace with or outstrip rising prices.
Financial modeling in Excel gives you a concrete way to:
– Translate abstract inflation fears into specific numbers.
– See how your choices today affect your future purchasing power.
– Build, test, and refine strategies for staying ahead.
Master the core modeling practices, learn the key functions and tools, and use them to simulate your own financial future. The more you can model, the less inflation feels like a vague threat and the more it becomes just another variable you know how to manage.