Understanding Average Inflation Rate
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The average inflation rate calculator helps you determine the annualized rate of price increase over a specific period. This is crucial for understanding the real return on investments, the erosion of savings, and for economic forecasting.
The formula used by this calculator is derived from the compound annual growth rate (CAGR) formula, adapted for inflation:
Average Inflation Rate = [(Final Value / Initial Value)^(1 / Number of Years)] – 1
Where:
- Initial Value: The price of a good or a basket of goods at the beginning of the period.
- Final Value: The price of the same good or basket of goods at the end of the period.
- Number of Years: The duration of the period in years.
A positive inflation rate means prices have increased, while a negative rate (deflation) indicates prices have decreased. For instance, if a basket of goods cost $100 five years ago and now costs $115, the average annual inflation rate would show how much those prices have risen on average each year.
Example:
Let's say you want to calculate the average inflation rate over 10 years. The cost of a specific basket of goods was $200 in 2013 and is $250 in 2023.
- Initial Value: $200
- Final Value: $250
- Number of Years: 10
Using the formula:
Average Inflation Rate = [($250 / $200)^(1 / 10)] – 1
Average Inflation Rate = [(1.25)^(0.1)] – 1
Average Inflation Rate = [1.022565] – 1
Average Inflation Rate ≈ 0.022565 or 2.26%
This means that, on average, the prices in this basket of goods have increased by about 2.26% each year over the last decade.
function calculateAverageInflation() {
var initialValue = parseFloat(document.getElementById("initialValue").value);
var finalValue = document.getElementById("finalValue").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultDiv = document.getElementById("result");
if (isNaN(initialValue) || isNaN(finalValue) || isNaN(numberOfYears) || initialValue <= 0 || finalValue < 0 || numberOfYears <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
if (initialValue === 0) {
resultDiv.innerHTML = "Initial value cannot be zero.";
return;
}
var inflationRate = Math.pow((finalValue / initialValue), (1 / numberOfYears)) – 1;
var percentageInflationRate = inflationRate * 100;
resultDiv.innerHTML = "The average annual inflation rate is:
" + percentageInflationRate.toFixed(2) + "%";
}
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