Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The annual inflation rate is a key economic indicator that tells us how much the cost of living has increased over a one-year period.
How to Calculate the Annual Inflation Rate
The most common way to calculate the annual inflation rate is by using the Consumer Price Index (CPI). The CPI measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The formula is as follows:
Annual Inflation Rate = [ (CPI Current Year - CPI Previous Year) / CPI Previous Year ] * 100
In this calculator:
Consumer Price Index (Previous Year): This is the CPI value from the same period in the previous year.
Consumer Price Index (Current Year): This is the CPI value for the current period you are analyzing.
A positive inflation rate means prices have generally increased, while a negative rate (deflation) means prices have generally decreased.
Example Calculation:
Let's say the CPI in January 2023 was 200 and the CPI in January 2024 was 206.