The formula to calculate the Rate of Inflation (R) is:
\[ R = \frac{ECPI - ICPI}{ICPI} \]
Where:
The Rate of Inflation measures the percentage change in the purchasing power of a particular currency. As the cost of prices increases, the purchasing power of the currency decreases.
Ending Consumer Price Index is a measure that examines the final weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
Initial Consumer Price Index is a measure that examines the initial weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
Let's assume the following values:
Using the formula:
\[ R = \frac{ECPI - ICPI}{ICPI} \]
Evaluating:
\[ R = \frac{106 - 100}{100} \]
The Rate of Inflation is 0.06 or 6%.
| Initial CPI | Ending CPI | Rate of Inflation |
|---|---|---|
| 90 | 96 | 0.07 |
| 95 | 101 | 0.06 |
| 100 | 106 | 0.06 |
| 105 | 111 | 0.06 |
| 110 | 116 | 0.05 |