Assume 1999 is base year What is the inflation rate in 2002

Assume 1999 is base year. What is the inflation rate in 2002?

Year CPI

1999 189

2000 193

2001 197

2002 194

Solution

Ans:

Inflation is the percentage increase in the general price level over a period.

Inflation rate = (current period CPI - base period CPI) / base period CPI

Inflation rate in 2002 = (197 - 189) / 189

                                 = 8 / 189

                                 = 0.042 or 4.02%