Inflation Rate Calculator
Understanding Inflation and How It's Calculated
Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, with varying targets of the inflation rate. A common measure of inflation in an economy is the Consumer Price Index (CPI), but for a specific item, we can calculate the inflation rate directly using its past and current prices.
How to Calculate Inflation Rate
The formula to calculate the inflation rate for a specific item is straightforward:
Inflation Rate = ((Current Price - Previous Price) / Previous Price) * 100
In this formula:
- Current Price: This is the price of the item today.
- Previous Price: This is the price of the same item at an earlier point in time, typically one year ago for annual inflation.
The result is expressed as a percentage, indicating how much the price of the item has increased over the specified period.
Example Calculation
Let's say the price of a loaf of bread was $3.00 one year ago (Previous Price), and today it costs $3.30 (Current Price).
Using the formula:
Inflation Rate = (($3.30 - $3.00) / $3.00) * 100
Inflation Rate = ($0.30 / $3.00) * 100
Inflation Rate = 0.10 * 100
Inflation Rate = 10%
This means the price of the loaf of bread has inflated by 10% over the past year.