Inflation

The rate at which the general price level rises, measured as the change in a price index.

An index moving from 170.0 to 178.5 over a year represents 5% inflation.

Inflation matters to a company in three separate ways that are often blurred. It raises input costs, which compresses margin unless prices can follow. It raises nominal revenue, which flatters growth. And it raises the discount rate through the risk-free rate, which lowers the value of the same future cash flows.

A business with pricing power is largely indifferent to moderate inflation and a price taker is not, which is why inflationary periods separate the two so clearly.

Check whether the revenue growth in an inflationary year was volume or price.

It raises revenue, raises costs, and raises the discount rate.