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Since 1980, the CPI has increased from 80.1 to 257.2 in 2020. In 1980, the average...

Since 1980, the CPI has increased from 80.1 to 257.2 in 2020. In 1980, the average US household spent $18,704 on all goods and services. Based on the increase in inflation, how much does a typical household spend in 2020?

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Answer #1

INFLATION RATE PER YEAR = (CPI IN 2020/CPI IN 1980)^(1/20) - 1

INFLATION RATE PER YEAR = (257.2/80.1)^(1/20) - 1 = 2.959390%

Average household spent 18704 in 1980

So household spend in 2020 = 18704 x (1+ 0.02959390)^40 = 60058.29 [rounded to 2 decimals]

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we can also calculate this amount directly

When CPI was 80.1, the average household spent 18704

Now if CPI is 257.2, the average household spend = 18704 x 257.2/80.1 = 60058.29 [rounded to 2 decimals]

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Answer : 60058.29

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