If your lift ticket costs exactly the same in March as it did in December, did you hold your price or cut it? Inflation says you cut it.
Learning objectives. After this week you can (1) compute an inflation rate from a price index; (2) turn a nominal price into a real one; and (3) say who gains and who loses from surprise inflation.
Remember this: a price, a wage or a raise only went up in real terms if it went up faster than inflation.
1) Measuring inflation
Inflation is a sustained rise in the general price level. The Consumer Price Index (CPI) tracks the cost of a fixed basket of consumer goods, so its percent change is the inflation rate. Deflation is the opposite: a falling price level.
Inflation Rate = (New Index − Old Index) ÷ Old Index × 100
CPI 200 → 210: 10 ÷ 200 × 100 = 5%. CPI 250 → 260: 10 ÷ 250 = 4%.
2) Your resort's price index
The Macro environment line on your Daily Report prints Inflation as an index, such as 1.020×. That means prices are 2% above the base of 1.000, and the report tells you your costs are inflation-adjusted. Index numbers are divided, never subtracted: going from 1.05 to 1.155 is 1.155 ÷ 1.05 = 1.10, a 10% rise, not 10.5%.
3) Nominal vs. real
Real Price = Nominal Price ÷ Price Index
Nominal means current dollars; real means adjusted for inflation. A $105 ticket when the index reads 1.050 is worth $100 in base-period dollars. Raise your ticket 4% while inflation is 4% and your real price has not changed. A 3% raise during 5% inflation is a real cut of about 2%, and savings earning 1% during 3% inflation earn about −2% in real terms. If prices double, a dollar buys half as much.
4) Who it hits
Unexpected inflation hurts lenders and people on fixed incomes, who are repaid in cheaper dollars, and tends to help borrowers. A cost-of-living raise tied to the CPI protects real income. For the resort, inflation arrives as rising fuel, wage and supply costs, all at once.
Quick self-check
(a) CPI goes from 120 to 126. Inflation? (b) The index goes from 1.000 to 1.040 and your ticket stays at $100. Your real ticket price? (c) Your wage rises 2% while inflation is 5%. What happened to your real wage? (Answers: 6 ÷ 120 = 5%; 100 ÷ 1.04 ≈ $96.15; it fell about 3%.)
Common mistakes
- Calling a nominal raise a real one. Compare it with inflation first.
- Dividing by the new index. Inflation divides by the old value.
- Subtracting index points. 1.05 to 1.155 is 10%, found by dividing.
This week in the arena
Read the Inflation index on your first and latest reports this week and compute the inflation rate between them. Then divide the ticket price on your decision form by the latest index to get your real ticket price. Has your ticket kept pace with your costs?