profil

To get the inflation effect easily, think like this:

P/E1 = 1/r =====> that we already know.

But r is nominal, so we can adjust it first (slowly) like this:

P/E1 = 1/(r-inflation + inflation) =======> no change it's the same so far.

Then use lambda (the percentage of inflation that passes through):

P/E1 = 1 / [(r-inflation) + (1-Lambda)* inflation]

Ignore the book's frmula.