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Calculating the Inflation Rate

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Question: If the CPI was 110 last year and is 121 this year what is this year's rate of inflation? What is the "rule of 70"? How long would it take for the price level to double if inflation persisted at:
(a) 2 percent per year?
(b) 5 percent per year?
(c) 10 percent per year?

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Solution Summary

In just under 160 words, this solution describes the steps required to calculate the inflation rate. It also discusses the "Rule of 70" and calculates the period it takes for the price level to double at the given inflation rates. All calculations and equations are provided.

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Solution:

CPI measures the average price of goods and services bought by consumers. The rate of inflation is the rate of change of the general price level and is measured as:

Rate of inflation for year(t)= [{Price level(year t)-Price level (year t-1)}/ Price level ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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