Inflation Rate
Percentage change in the price index.
Formula
Variables
Example
Rising prices over time
How it works
This formula calculates how much the consumer price index has changed from one period to the next as a percentage of the starting value. It works by comparing the new CPI to the old CPI, finding the difference, and then scaling that difference relative to the original CPI so the result shows proportional change rather than just an absolute number. A positive result means prices, on average, have risen; a negative result means they have fallen.
When to use it
Use this when you need to measure inflation between two dates, such as from one year to the next or from one month to the next. It is commonly used in economics, finance, and policy analysis to compare changes in the general price level.
Worked example, step by step
Suppose the CPI was 240 last year and 252 this year. Step 1: Identify the values: CPI_0 = 240, CPI_1 = 252 Step 2: Subtract to find the change: 252 - 240 = 12 Step 3: Divide by the original CPI: 12 / 240 = 0.05 Step 4: Convert to a percentage: 0.05 × 100 = 5% Final answer: the inflation rate is 5%
Common mistakes to avoid
- Using the new CPI as the denominator instead of the original CPI
- Forgetting to multiply by 100 to convert the decimal to a percentage
- Mixing up CPI_0 and CPI_1, which can flip the sign of the inflation rate
Did You Know?
Modest inflation is deliberately targeted by central banks, usually around 2%, to keep economies growing.
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