Inflation
Short definition
Inflation is a sustained rise in the general price level. It inflates nominal profit, raises the cash working-capital need and cuts or turns real rates negative.
Detailed explanation
CPI speaks to demand and wages, PPI to input cost; when they diverge, margin is squeezed. Expectations move price lists and wage contracts before CPI.
Inventory and receivables tie up more cash in an inflationary period. Historical-cost depreciation undershoots maintenance cash. If WACC is nominal, cash flows are written nominal too.
Why it matters for the CFO
A sales record may not be real growth. A cash budget that misses inflationary NWC and tax instalments produces a liquidity shock.
How to read it
Which index? Customers CPI, inputs PPI, debt a nominal rate. Do not decide on “inflation is high” until all three are read.
Related calculators
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.