Price Index and Inflation Rate
An inflation rate compares the price index across periods.
About 20 minutes, plus any extended practice
Supplied materials
- Paper and pencil; a calculator is optional.
- Calculation rule: Inflation rate = (later index − earlier index) ÷ earlier index × 100.
- Fictional case 1: Fictional index rises from 100 to 105. Rate?
- Fictional case 2: Fictional index rises from 200 to 210. Rate?
- Fictional case 3: Fictional index rises from 120 to 132. Rate?
- Fictional case 4: Fictional index rises from 80 to 84. Rate?
- Fictional case 5: Fictional index rises from 150 to 165. Rate?
- Fictional case 6: Fictional index rises from 250 to 260. Rate?
- Fictional case 7: Fictional index rises from 300 to 315. Rate?
- Fictional case 8: Fictional index rises from 400 to 440. Rate?
Learn the idea
An inflation rate compares the price index across periods. Subtract the earlier index, divide by that earlier index, then multiply by one hundred. An index-point change is not the same as a percentage change. These fictional indices describe a model basket and do not establish every household’s price experience.
Inflation rate = (later index − earlier index) ÷ earlier index × 100.
Work from the stated fictional inputs and show each operation. Report the required unit and retain the model’s conditions. A calculated change can describe this exercise accurately without proving a causal policy effect in the real world. Check what has been omitted before applying a numerical model to a decision.
- Read the stated fictional case and identify the required output.
- Inflation rate = (later index − earlier index) ÷ earlier index × 100.
- Write the values into the rule, calculate and report the required unit.
- Explain one condition the calculation does not establish about actual society.
See the method in action
Fictional index rises from 100 to 105. Rate? Inflation rate = (later index − earlier index) ÷ earlier index × 100. Substitute the given values: (105-100)/100*100 = 5%. I keep the stated units and operation order; changing an operation would answer a different question. This result describes the supplied model; other real-world factors could change an actual outcome.
Check your reasoning
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Helpful tips
- Inflation rate = (later index − earlier index) ÷ earlier index × 100.
- Keep the stated unit and model conditions. A calculated output does not establish a real-world causal effect.
See the answer and explanation
5%
Inflation rate = (later index − earlier index) ÷ earlier index × 100. Calculation: (210-200)/200*100 = 5%. This is a result for the supplied fictional inputs, not an observed statistic or guaranteed forecast.
Take it further
Fictional index rises from 400 to 440. Rate? Expected: (440-400)/400*100 = 10%. Show the operation and state one model limitation.
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