Answer to Question #295873 in Financial Math for Ella

Question

One year, the price of a flat was 127365 €, and the consumer price index (CPI) was 105.8. A couple of years later, the price has risen to 135149 €, and the consumer price index (CPI) was 112.2. Calculate the relative real change in the price as percentage.

Answer 1

Rate of inflation is: $(112.2 - 105.8)/105.8 = 0.0605$ or 6.05%.

The relative nominal change in her salary is:

$(135,149 - 127,365)/127,365 = 0.0611$ or 6.11%.

The relative real change in her salary (purchasing power) as percentage is:

6.11 - 6.05 = 0.06%.