Question

Two years ago Carol's living expenses were $ 1200 $ 1200 per month. This year the same items cost Carol $ 1400 $ 1400 per month. What was the annual inflation rate for the past two years?

Answer 1

Given:
2 years ago - consumer price index 1,200 per month
current year - consumer price index 1,400 per month

Inflation rate = [(Consumer price index current - Consumer price index previous) / Consumer price index previous ] * 100%

Inflation rate = [(1400 - 1200) / 1200] * 100%  = (200 / 1200) * 100% =  16.67%

Since 2 years has passed, the 16.67% inflation rate is good for 2 years. We simply divide the inflation rate by 2 to get the annual inflation rate.

16.66% / 2 = 8.33%

The annual inflation rate for the past two years is 8.33%

Answer 2

Inflation = ((price index difference / price index in base year) x 100) / period
             = ((200 / 1200) x 100) / 2
             = 8.33%