How to calculate the annual inflation rate

Written by christopher hundley Google
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The price increase of goods and services in an economy is known as inflation. The rate of inflation can stimulate growth or cause stagnation in a region or country. High rates of inflation can weaken currency, capital markets and consumer purchasing power. In contrast, low rates of inflation can stimulate capital investment and lead to growth. Negative inflation can reduce capital investment and lead to economic stagnation.

Because the rate of inflation can have such a significant impact, it is important to know what the annual rate of inflation is, whether you are a business owner or an individual investor.

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  1. 1

    Go to the website of the Bureau of Labor Statistics (see Resources section).

  2. 2

    In the right-hand column, "Latest Numbers," select the link "Historical Data" associated with "Consumer Price Index."

  3. 3

    Select "More Formatting Options."

  4. 4

    Uncheck the box "1 Month Percent Change" and select the box marked "Original Data Change." Click "Retrieve Data."

  1. 1

    The formula for calculating the inflation rate is [(end CPI - start CPI) / start CPI] x 100, where "CPI" is the Consumer Price Index.

  2. 2

    Look at the CPI numbers associated with the 12-month period that mark the start and end of the period for which you'd like to calculate the annual inflation rate. For example, if you'd like to calculate the annual inflation rate between February 2008 and February 2009, take note of the numbers 212.860 and 213.007.

  3. 3

    Subtract the end CPI, in this case 213.007, from the start CPI, 212.860. The result here is 0.147.

  4. 4

    Divide that result by the start CPI (212.860) and multiply by 100. This product, 0.069 or 6.9 per cent, is the annual inflation rate for the period you've selected.

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