Question

An arc welder with AI software onboard costs $3,800 today, $3750 last year, and $3,100 one year prior to that. Determine the one-year rate of inflation for each year.

The inflation rate for last year was ___%.?

The inflation rate for one year prior to last year was ___%.?

Answer 1

Inflation rate = (Price in current period- Price in base year)/Price in base year *100

The price of welder today(Period 1) is 3800

The price of welder last year (period 2) was 3750

The price of welder in year previous to that (Period 3) was 3100.

So, for calculating inflation of last year, we will consider Period 2 and 3 because the current year inflation is not being asked. The base year will be the last year/preceding year to the year for which we are calculating the inflation rate. Hence, the inflation rate = (3750-3100)/3100* 100 = 650/3100*100= 20.96%

The inflation rate for year previous than that will calculated using the same year as the base year because we do not have any data of the preceding year to that. Hence, inflation rate= (3100-3100)/3100*100 = 0/3100*100 = 0%

So, in the Period 3 there was not inflation as the series starts from there.

In the period 2, the inflation was 20.96%.

The present year inflation can also be calculated using the same formula, keeping period 2 as the base year Price. The question however doesn't ask for present year's inflation.