Given CPI in 2006 1600 CPI in 2007 1705 CPI in 2008 1724

Given: CPI in 2006 = 160.0; CPI in 2007 = 170.5; CPI in 2008 = 172.4; CPI in 2009 = 168.2

a. Compute the inflation rate in 2007, in 2008, and in 2009.

b. Based on the given data and your computations above, we can say that deflation occurred in 2008: true or false? Explain.

c. Based on the given data and your computations above, in which year did disinflation occur?

Solution

Req a: Inflation rate Year-2007: CPI of 2007 /CPI of 2006 -100 170.5/160 - 100 = 6.56% Year-2008: CPI of 2008/CPI of 2007 -100 172.4 /170.5 -100 = 1.11% Year 2009: CPI of 2009 / CPI of 2008 -100 168.2 /172.4 -100 = -2.44% (Deflation) Req b: false, there is a inflation by 1.11% in 2008 Req c: Year 2009, the deflation is at rate of 2.44%