{"id":146925,"date":"2023-06-30T10:35:00","date_gmt":"2023-06-30T10:35:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=146925"},"modified":"2023-07-02T10:36:08","modified_gmt":"2023-07-02T10:36:08","slug":"how-to-calculate-inflation","status":"publish","type":"post","link":"https:\/\/businessyield.com\/finance-accounting\/how-to-calculate-inflation\/","title":{"rendered":"HOW TO CALCULATE INFLATION: Explained!","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"

Have you ever been puzzled why your favorite childhood candy seems to be much more expensive than you remember? When you look around, everything is more expensive than it was when you were a child. The truth is that the value of money is constantly changing, and it sometimes tends toward inflation<\/a>. In this article, we\u2019ll explore the nature of the inflation rate, how to calculate it, and discuss the basic steps for calculating it.<\/p>

What Is the Inflation Rate?<\/h2>

Assume you had $7 in your wallet and wanted to buy a gallon of milk. If you bought it right now for $3.50, you could purchase two gallons of milk. However, if you opt to keep the $7 in your wallet and utilize it to buy milk later, the gallon of milk may no longer cost $3.50.It may instead cost $3.80, allowing you to purchase simply one gallon of milk. This signifies that inflation has reduced your purchasing power.<\/p>

The inflation rate is a measure of the general price increase or rate of increase of specified products and services over a given time period. Inflation is often measured and reported as a percentage and can imply a loss in the purchasing power or value of a country’s currency.<\/p>

Why is the Inflation Rate Important?<\/h2>

The significance of the inflation rate is determined by how it affects the economy. When the average cost of goods and services rises, the currency loses value, and more money is needed to acquire the same products and services as before.<\/p>

For example, if Tom set aside $500 per month for food but the inflation rate drives up the price of groceries, he would have to increase his grocery budget to afford the same items. In Tom’s instance, the inflation rate would force him to either increase his shopping budget or reduce the number and\/or quality of his goods.<\/p>

That is why the inflation rate is so important in how you budget your lifestyle and plan for the future. The fluctuation in the value of the dollar will affect your cost of living.<\/p>

Furthermore, keeping an eye on inflation on a frequent basis is critical since the negative effects of a consistent inflation rate will lead to slower economic growth.<\/p>

Consumer Price Index (CPI) Considerations<\/h2>

The CPI is useful in determining how the costs of goods and services have changed for computing the inflation rate formula. The Consumer Price Index (CPI) tracks the average change in the prices of a market basket of goods and services purchased by consumers over time. The CPI evaluates products and services ranging from coffee, milk, and cereal to housing costs, transportation, medical bills, apparel, household furniture, airline flights, and more.<\/p>

Every month, the Bureau of Labor Statistics (BLS) records and reports the prices per item for various products and services. The CPI is used to indicate not only changes in the prices of goods and services and how they affect the cost of living but also the inflation and deflation that occurs in an economy.<\/p>

What Is the Inflation Rate Formula?<\/h2>

Knowing how to calculate inflation will help you comprehend it better. The inflation rate formula calculates the percentage rise or decrease in price between two years.<\/p>

Inflation rate = ((B-A)\/A) x 100<\/p>