The word deflating is the verbal form of the word ‘deflation’ which is just opposite to the word inflation. Thus, deflating means counteracting the effect of inflation over a set of data to unravel their true values and make them comparable. Since, price level and their indices are very often subject to inflation, it becomes necessary to deflate tem properly to determine the true and comparable value of certain related factors viz. (i) Purchasing power of money, (ii) Real wage, or Real income, (iii) Real wage index or Real income index.

**Methods of deflating**

**1. Purchasing power of money**

This can be deflated by the following formula.

Purchasing power of money = 100/Price index

Thus, if the price rises by 25%, the price index becomes 125 and in that case, the purchasing power of every rupee would be 100/125 = .80 p.s

This means that rupee in the current year is equal to .80 ps. In the base year.

**2. Real wage or income**

This can be deflated by the following formula:

Real wage = (Money wage/ Price index) x 100

Here, price index should preferably be the consumer price index rather than the wholesale price index as the former feflec4ts very well the change in the purchasing power of a wage earner.

Thus, if a worker earns $1500 during a year in which the price index stands at 150, the real value of his wage in comparison to the wage of the base year would be (1500/150) x 100 = $1000 , This means that his present wage of $1500 is equal to the wage of $100 earned in the base year.

**3. Real wage index or Real income index**

This can be deflated by the following formula:

Real wage index no. = (Index of money wage/ Price index number) x 100

= (Real wage of the current year / Real wage of the base year) x 100