Question

Calculating the Inflation Rate

Using the simple percent change formula above and the annual CPIs in the table below, it becomes possible to calculate the inflation rate between any two years.

For example, the inflation rate from 1990 to 1991 was 4.2 percent:

CPI (1991) − CPI (1990) X100

            CPI(1990)

=   136.2 – 130.7 X 100

            130.7

= 5.5/130.7 × 100

= 0.420 × 100

= 4.2%

Use the annual CPI data in the Table below to complete the inflation rate calculations for each year in Table A.

Table A: Calculating Inflation Rates

	CPI (Year 1 or Previous Year)	CPI (Year 2 or Current Year)	Calculations	Inflation Rate from Preceding Year
1995
2005
2019

1. If you earned $10 an hour in 1994, how much would you have to earn in 1995 for your wage to have the same purchasing power?

2. If you saved $100 in 2018, how much interest would you have to earn in order for the savings to have the same purchasing power in 2019?

Table: Annual Average CPI (1982–1984 to 2012)

*Average CPI for 1982, 1983, and 1984; base level = 100.

Year	Annual Average CPI
1982-1984	100.0
1985	107.6
1986	109.6
1987	113.6
1988	118.3
1989	124.0
1990	130.7
1991	136.2
1992	140.3
1992	144.5
1994	148.2
1995	152.4
1996	156.9
1997	160.5
1998	163.0
1999	166.6
2000	172.2
2001	177.1
2002	179.9
2003	184.0
2004	188.9
2005	195.3
2006	201.6
2007	207.3
2008	215.3
2009	214.5
2010	218.1
2011	224.9
2012	229.6
2013	232.9
2014	236.7
2015	237.0
2016	240.0
2017	245.1
2018	251.1
2019	255.6

How Much Did Things Cost in the “Good Old Days”?

Have you ever heard your parents or grandparents say, “Back in my day, a loaf of bread only cost a nickel and a gallon of gas only cost a quarter”? How can it be that things were so much cheaper back then? Were they really cheaper? You will try to answer this question by comparing modern prices to historical prices and calculating the percent increase in prices. To do so, you will examine prices of two goods: movie tickets and a McDonald’s Big Mac®.

Calculating Percent Change in Price

Percent change in price is calculated by dividing the amount of change in price by the original price and multiplying the result by 100. If the price has increased, percent change will be positive, and if the price has decreased, the percent change will be negative. The formula for calculating percent change in price:

New price – Old price × 100       OR        Price (Year 2) – Price (Year 1) × 100

Old price                                               Price (Year 1)

Historic Prices

Goods	Price in 1986 (nominal price)	Price in 2019 (nominal price)	Percent Change in Nominal Price
Movie Ticket	$3.71	$9.25
McDonalds Big Mac	$1.80	$3.99

1. Which item had the largest percent increase in price?

2. Prices seem so low in 1967. Were people much better off then? What else would

you need to know to draw a conclusion?

Answer 1

In conclusion we can say that , with the change in year price of commodity hick up due to inflation factor and many other factors like time value of money . This mechanism is happened by various factors like demand pull and cost push factors thats why our grandparents said us that we could purchase a lot of items with low income.