A definition of inflation found in Economics by Parkin and Bade:
- Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability.
Inflation is caused by a combination of four factors:
- The supply of money goes up.
- The supply of other goods goes down.
- Demand for money goes down.
- Demand for other goods goes up.
The formula for calculating the Inflation Rate looks like this:
((B – A)/A)*100
So if exactly one year ago the Consumer Price Index was 178 and today the CPI is 185, then the calculations would look like this:
Consider the U.S. system…..
The Consumer Price Index (CPI-U) is compiled by the Bureau of Labor Statistics and is based upon a 1982 Base of 100. A Consumer Price Index of 158 indicates 58% inflation since 1982, the commonly quoted inflation rate of say 3% is actually the change in the Consumer Price Index from a year earlier.
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Some related links..
http://www.bls.gov/CPI/ /* homepage of U.S. CONSUMER PRICE INDEX */