Economic Development Indices Questions Medium
The inflation rate is calculated by comparing the changes in the average price level of a basket of goods and services over a specific period of time. It is typically measured using a price index, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI). The calculation involves dividing the difference between the current price index and the previous price index by the previous price index, and then multiplying the result by 100 to express it as a percentage. This formula can be represented as:
Inflation Rate = ((Current Price Index - Previous Price Index) / Previous Price Index) * 100
For example, if the CPI for the current year is 120 and the CPI for the previous year was 110, the inflation rate would be calculated as:
((120 - 110) / 110) * 100 = 9.09%
This indicates that the average price level has increased by 9.09% over the specified period. The inflation rate is an important economic indicator as it helps policymakers, businesses, and individuals understand the rate at which prices are rising and adjust their economic decisions accordingly.