In: Finance
Compute the annual inflation rate by using the monthly inflation rates over the last (available) twelve months. Include the effect of compounding.
Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
2020 | 2.5 | 2.3 | 1.5 | 0.3 | 0.1 | 0.6 | 1 | 1.3 | 1.4 | |||
2019 | 1.8 | 2.1 | 2.3 |
For computing the 12 Month average considering the effect of Compounding, We have to use Geometric Average of Monthly Inflation Rates. |
Geometric Average = the nth root of the product of n numbers |
Average = [(1+0.018)(1+0.021)(1+0.023)(1+0.025)(1+0.023)(1+0.015)(1+0.003)(1+0.001)(1+0.006)(1+0.001)(1+0.013)(1+0.014)]^(1/12) - 1 |
Average = 1.014 - 1 |
Average = 0.014 (or) 1.4% |