Calculating Inflation rates

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Compute the inflation rate for each year 1989-2006 and determine which were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

Year CPI
1988 118.3
1989 124
1990 130.7
1991 136.2
1992 140.3
1993 144.5
1994 148.2
1995 152.4
1996 156.9
1997 160.5
1998 163
1999 166.6
2000 172.2
2001 177.1
2002 179.9
2003 184
2004 188.9
2005 195.3
2006 201.8

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Solution
Inflation = (CPI in t+1 period-CPI in t period)/(CPI in t period)
Growth rates of inflation are calculated for 1989 to 2006 with the use of above formula.
Inflation in 1989=(124-118.3)/118.3=4.82%
Similarly rates have been calculated for all other years.

Deflation means fall in CPI as comared to last year's CPI i.e. negative inflation.
No such evidence of deflation is visible

Hyperinflation means % rises in CPI which ...

Solution Summary

Solution describes the formula for calculating inflation rate for each year. It determines the years when deflation, disinflation or hyperinflation occured.

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Solution provided by:

Lokesh Jain, MSc

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