Question

If the CPI for 2017 is 120 and the CPI for 2018 is 140, what is the rate of inflation between 2017 and 2018?

Answer 1

Answer

Rate of Inflation means the percentage increase in price level.

As CPI i.e. Consumer price index represents price level so, rate of inflation between 2017 and 2018 is the % increase in price level(CPI).

CPI for Year 2017 = 120 and CPI for Year 2018 = 140

% change in Price level = % change in CPI = [(New CPI - Initial CPI)/(Initial CPI)]*100

As New CPI = CPI in 2018 = 140 and Initial CPI = CPI in 2017 = 120

So, % change in Price level = % change in CPI = [(New CPI - Initial CPI)/(Initial CPI)]*100 = ((140 - 120)/120)*100

= 16.67%

Thus, Inflation rate = % change in Price level = 16.67%

Hence,  the rate of inflation between 2017 and 2018 = 16.67%