Forecast growing expenses due to inflation
You will also assume your monthly expenses will rise by an average of 2.5% per year due to inflation. This will lead to higher cost of living over time, paying for the same expenses each year but at a higher price. Luckily, your salary is growing faster than inflation, which means you should have more money going into savings each month.
The monthly_expenses and forecast_months variables from the previous exercise are available.
This exercise is part of the course
Introduction to Financial Concepts in Python
Exercise instructions
- Set the annual inflation rate to 2.5%.
- Derive the equivalent monthly inflation rate.
- Forecast cumulative inflation growth over time.
- Derive your monthly expenses by adjusting for growth due to inflation.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
import numpy as np
# Set the annual inflation rate
annual_inflation = ____
# Calculate the equivalent monthly inflation rate
monthly_inflation = ____
# Forecast cumulative inflation over time
cumulative_inflation_forecast = ____
# Calculate your forecasted expenses
expenses_forecast = ____
# Plot the forecasted expenses
plt.plot(expenses_forecast, color='red')
plt.show()