Unformatted text preview: CPI = (Price of a basket of goods and services / price of the basket in base year) X 100 Thus: CPI in Year 1 ($78/$78) X 100 = 100 CPI in Year 2 ($96/$78) X 100 = 123 CPI in Year 3 ($114/$78) X 100 = 146 3. Compute the inflation rate: Inflation rate is the percentage change in the price index from the preceding period. To calculate the inflation rate, the following formula is used Inflation rate for year (2) = CPI (in year 2) – CPI (in year 1)/ CPI (in year 1) X 100 Thus: Inflation rate for Year 2 (123 100)/100 x 100 = 23% Inflation rate for Year 3 (146 123)/123 x 100 = 19%...
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 Spring '11
 sam
 Inflation, Consumer price index, GDP deflator

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