Posted by: jamaljaafar | June 26, 2008

Inflation and its Calculation

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:

  1. The supply of money goes up.
  2. The supply of other goods goes down.
  3. Demand for money goes down.
  4. Demand for other goods goes up.

Calculation…

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:

((185-178)/178)*100
or
(7/178)*100
or
0.0393*100

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.

For more..keep checking the blog.

Some related links..

http://www.inflationdata.com/Inflation/

http://www.bls.gov/CPI/ /* homepage of U.S. CONSUMER PRICE INDEX */

http://en.wikipedia.org/wiki/Inflation_rate


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