Adjust figures for inflation, such as for spending and compensation

Every year, the same basket of goods and services costs a bit more – retail price increases in recent years have run in the two-to-four percent range. Because of this trend, it’s misleading for general counsel to use nominal (raw) numbers to compare spending over a period of years (See my post of March 12, 2006 on nominal data, which is not adjusted for inflation.). For example, if a law department spent $10 million in 1995 on outside counsel and ten years later, in 2005, spent $12 million, how has it performed after adjusting for retail price inflation in the United States? According to an easy-to-use site, the original costs of legal services would have inflated to $12,759,083 – so the law department has actually held the line against inflation.

Whenever a law department shows and explains spending figures over multi-year periods, it should convert those figures to constant (inflation-adjusted) currency amounts so that the effects of inflation do not insidiously distort the analysis.

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