Inflation Rate Formula
Calculate the rate at which prices increase over time.
Measures the decrease in purchasing power of money.
The Formula
Inflation Rate = ((CPI_current - CPI_previous) / CPI_previous) × 100
The inflation rate measures how quickly prices are rising in an economy. It is typically calculated using the Consumer Price Index (CPI) from one period to the next.
Variables
| Symbol | Meaning |
|---|---|
| Inflation Rate | Percentage increase in prices (%) |
| CPI_current | Consumer Price Index for the current period |
| CPI_previous | Consumer Price Index for the previous period |
Example 1
CPI was 260 last year and 270 this year. What is the inflation rate?
Inflation = ((270 - 260) / 260) × 100
Inflation = (10 / 260) × 100
Inflation rate ≈ 3.85%
Example 2
A basket of goods cost $500 in 2023 and $530 in 2024
Inflation = ((530 - 500) / 500) × 100
Inflation rate = 6%
When to Use It
Use the inflation rate formula when:
- Measuring how much prices have risen over a period
- Adjusting wages or contracts for cost of living
- Comparing the purchasing power of money over time
- Evaluating central bank monetary policy effectiveness