Below is a hypothetical CPI table.
Year | Hypothetical CPI | Inflation rate |
---|---|---|
1935 | 10 | — |
1936 | 20 | % |
1937 | 40 | % |
1938 | 80 | % |
Find the three-year inflation rate from 1935 to 1938.
If we change the base year, each year, to the previous year, then the three-year inflation rates from 1935 to 1938 are as under:
Year |
Hypothetical CPI |
Inflation rate |
1935 |
10 |
— |
1936 |
20 |
100% |
1937 |
40 |
100% |
1938 |
80 |
100% |
However, if the base year is kept fixed as 1935, then the three-year inflation rates from 1935 to 1938 are as under:
Year |
Hypothetical CPI |
Inflation rate |
1935 |
10 |
— |
1936 |
20 |
100% |
1937 |
40 |
300% |
1938 |
80 |
700% |
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