Answer to Question #224651 in Macroeconomics for Tuba

Question

Suppose a country's CPI increased from 2.1 to 2.3 in the course of 1 year. Use this fact to compute the rate of inflation for that year. Why might the CPI overstate the rate of inflation?

Answer 1

ANSWER

The percentage change in the CPI is given by;

CPI = CHANGE IN THE CPI \ INITIAL CPI * 100%

= (2.3 - 2.1) \ (2.1)* 100%

= 9.52%