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Inflation Rate: Year CPI

The inflation rate is the percentage increase in the average prices of consumer goods over time, indicating a decrease in a currency's purchasing power. It is most commonly caused by an increase in the money supply. To calculate the inflation rate, a basket of standard consumer products is selected and their prices are tracked over time using the Consumer Price Index. The inflation rate shows how much a currency has lost value compared to the basket of goods. For example, in the given data the inflation rate between 2004 and 2005 was 9.76%, meaning prices increased almost 10% on average during that period.

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51 views2 pages

Inflation Rate: Year CPI

The inflation rate is the percentage increase in the average prices of consumer goods over time, indicating a decrease in a currency's purchasing power. It is most commonly caused by an increase in the money supply. To calculate the inflation rate, a basket of standard consumer products is selected and their prices are tracked over time using the Consumer Price Index. The inflation rate shows how much a currency has lost value compared to the basket of goods. For example, in the given data the inflation rate between 2004 and 2005 was 9.76%, meaning prices increased almost 10% on average during that period.

Uploaded by

Nemia Gonzaga
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Inflation Rate

The inflation rate is the percentage increase in the average level of prices of a basket of selected goods
over time. It indicates a decrease in the purchasing power of currency and results in an increased
consumer price index (CPI). Put simply, the inflation rate is the rate at which the general prices of
consumer goods increases when the currency purchase power is falling.

The most common cause of inflation is an increase in the money supply, though it can be caused by many
different circumstances and events. The value of the floating currency starts to decline when it becomes
abundant. What this means is that the currency is not as scarce and, as a result, not as valuable.

By comparing a list of standard products (the CPI), the change in price over time will be measured by the
inflation rate. The prices of products such as milk, bread, and gas will be tracked over time after they are
grouped together. Inflation shows that the money used to buy these products is not worth as much as it
used to be when there is an increase in these products’ prices over time.

The inflation rate is basically the rate at which money loses its value when compared to the basket of
selected goods – which is a fixed set of consumer products and services that are valued on an annual basis.

Consumer Price Index (CPI) – summarizes the changes in the level of prices. It is useful tool in indicating
price changes and measuring inflation.

Using the CPI, inflation is computed as:

CPI year₂ - CPI year₁


Inflation Rate = -------------------------------------------x 100%
CPI year₁

Example:

Hypothetical CPI, 2000 – 2006

YEAR CPI
2000 5.2
2001 6.3
2002 6.5
2003 7
2004 8.2
2005 9
2006 9.6
WHAT IS THE INFLATION RATE FOR 2005?

9 – 8.2
Inflation Rate = -------------------------- x 100 %
8.2

0.8
= ------------x100%
8.2

= 0.0976 x 100%
Inflation rate = 9.76%

The inflation rate from the aforementioned computation means that anything that
was brought in 2004 has increased its average price by 9.76% in 2005.

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