How to calculate salary inflation

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Unless you were born with a silver spoon in your mouth, making a living is a large part of your day. Due to inflation, the cost of goods and services may go up even when the value of the good or service does not. The same thing happens to your salary; that is, due to inflation your salary may not go as far this year as it did last year.

Determine the current rate of inflation. The government uses Consumer Price Index from the Office for National Statistics. Watch out for this figure on the news, where it will be called CPI, or checkout the ONS website (see Resources). is one source for the current rate of inflation. See Resources for a link. For this illustration use a rate of 3 per cent.

Determine your current salary. This is the amount you are being paid today. Let's say your current salary is £32,500 per year.

Add 1 to the current rate of inflation and multiply by your current salary. The calculation is: (1 + 0.03) x £32,500 = 1.03 x £32,500 = £33,475.

Calculate salary inflation. Subtract your current salary from the answer in step 3. The calculation is £33,475 - £32,500 = £975. This is how much more you need to earn, on an annualised basis, in order to keep up with the pace of inflation.

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