Question

The Bureau of Labor Statistics has a website (www.bls.gov) that contains a Consumer Price Index inflation calculator that uses the average CPI to adjust the purchasing power of money over different periods of time. The CPI index value has been calculated every year since 1913. The calculator indicated that $2.8 million in 1913 would have the same purchasing power as $23,930,909 in 2016. What was the average inflation rate over this 103-year time period?

The average inflation rate was _____% per year.

Answer 1

Amount in 1913 = $2.8 million

Amount in 2016 = $23,930,909

Time period = 103 years

Calculate the average inflation rate -

Average annual inflation rate = [Amount in 2016/Amount in 1913]^{1/time period} - 1

Average annual inflation rate = [$23,930,909/$2,800,000]^1/103 - 1

Average annual inflation rate = 1.021047 - 1 = 0.021047 or 2.1047%

Thus,

The average inflation rate was 2.10% per year.