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Hello. I am going through the topic of investment appraisal using NPV. There are two types of inflation rate, specific and general. I understand the point of general inflation rate but I do not understand the need for specific inflation rate. To me it seems that the money, is the same regardless of the investment/project and, therefore, the return from two different projects should be adjusted with the same inflation rate. I understand if we have two different currencies but what is the point if the currency is the same. Could you, please, explain why in certain circumstances specific inflation rate may be required. Thank you
In investment appraisal, specific inflation rates are used to reflect the varying rates at which different costs and revenues inflate.
While the general inflation rate provides an average measure of inflation across the economy, specific inflation rates account for the fact that not all prices change at the same rate.
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