**– Part-(a) Calculate the rate of inflation this year in terms of percentage. Express the answer in the form of a whole number in Part-(a).**

**– Part-(b) In contrast to Part-(a), calculate the rate of inflation this year if the CPI is supposed to be $110$ for last year and $108$ for this year. Express the answer by rounding off to 1 decimal place.**

**– Part-(c) Explain the terminology which is used by the economists to describe the answer to Part-(b) (Inflation or Deflation)**

The aim of this question is to find the **rate of inflation** by comparing the **CPI** **of this year** with the** CPI of last year**.

The basic concept behind this article is the calculation of the **rate of increase or decrease** also known as **Percentage Increase or Decrease**. **Increase** or **decrease** is expressed in terms of **positive** or **negative** **value** respectively.

For the **Percentage Increase/Decrease** calculation between two values, we use the following formula:

\[Percentage\ Increase/Decrease=\frac{Final\ Value-Initial\ Value}{Initial\ Value}\times 100\]

**CPI** is the abbreviation for **Consumer Price Index** which is used to track the **rate of inflation** by observing the **changes** in the **cost of living over time**.

## Expert Answer

**Part-(a)**

Given that:

**This Year’s CPI** $=121$

**Last Year’s CPI** $=110$

The **Rate of Inflation** is calculated as follows by using the **Percentage Increase or Decrease Formula**:

\[Rate\ of\ Inflation=\frac{This\ Year\ CPI-Last\ year\ CPI}{Last\ year\ CPI}\times 100\]

Substituting the given values:

\[Rate\ of\ Inflation=\frac{121-110}{110}\times 100\]

\[Rate\ of\ Inflation=\frac{11}{110}\times 100\]

\[Rate\ of\ Inflation=0.1\times 100\]

\[Rate\ of\ Inflation=10\%\]

The answer shows a **positive** **rate of inflation** which means that the **inflation** **this year** is **increasing** as compared to **last year**.

**Part-(b)**

Given that:

**This Year’s CPI** $=108$

**Last Year’s CPI** $=110$

The **Rate of Inflation** is calculated as follows by using the **Percentage Increase or Decrease Formula**:

\[Rate\ of\ Inflation=\frac{This\ Year\ CPI-Last\ year\ CPI}{Last\ year\ CPI}\times 100\]

Substituting the given values:

\[Rate\ of\ Inflation=\frac{108-110}{110}\times 100\]

\[Rate\ of\ Inflation=\frac{-2}{10}\times 100\]

\[Rate\ of\ Inflation=-0.0181\times 100\]

\[Rate\ of\ Inflation=-1.81\%\]

To express the answer with **1 decimal place**:

\[Rate\ of\ Inflation=-1.8\%\]

The answer shows a **negative rate of inflation,** which means that the** inflation this year** is **decreasing** as compared to** last year**.

**Part-(c)**

The **negative rate of inflation** means that the **rate of inflation** is **decreasing** as compared to **last year**.

A **negative rate of inflation** is expressed as **Deflation** by **Economists, **hence the answer of **Part-(b)** represents **Deflation**.

## Numerical Result

**Part-(a)** The **Rate of Inflation** is $10\%$, which means that the **inflation this year** is **increasing** as compared to** last year**.

**Part-(b)** The **Rate of Inflation** is $-1.8\%$, which means that the **inflation this year** is **decreasing** as compared to **last year**.

**Part-(c)**

The answer of **Part-(b)** represents the **Negative rate of inflation,** which is expressed as **Deflation** by the **Economist**.

## Example

The **current price** of a car is $USD-8000$. It was $USD-6500$ **last year**. Calculate the **rate of increase** in the **car price**.

**Solution**

The **Rate of Increase** is calculated as follows:

\[Rate\ of\ Increase=\frac{This\ Year\ Car\ Price-Last\ year\ Car\ Price}{Last\ year\ Car\ Price}\times 100\]

\[Rate\ of\ Increase=\frac{8000-6500}{6500}\times 100\]

\[Rate\ of\ Increase=0.2307\times 100\]

\[Rate\ of\ Increase=23.07\%\]