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Determining the inflation rate. In 2006, selected automobiles had an average cost of $16,000. The average...

Determining the inflation rate. In 2006, selected automobiles had an average cost of $16,000. The average cost of those same automobiles is now $28,000. What was the rate of increase for these automobiles between the two time periods?

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Answer #1

Inflation rate

It is the increase in the value of goods or service with a passage of time due to changing circumstances.

It can be calculated with the help of following formula:

Inflation rate/ increase rate = (T2 – T1 / T1)*100

Where T2 is the value of good in current period or next period and T1 is the value of good in previous period or current period respectively.

In present case,

T2 = $28,000

T1 = $16,000

Inflation rate = ($28,000 - $16,000 / $16,000) * 100

                         = ($12,000 / $16,000) * 100

                         = 75%

Inflation rate is calculated over the 12 years, annual rate may differ.

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