economics question to help me understand?

I found this question online when I was studying for economics, I think that seeing the answer will help me to further understand economics...can you help?

Inflation: Here are some recent data on the U.S. consumer price index:

Year CPI Year CPI Year CPI

1988 118.3 1994 148.2 2000 172.2

1989 124.0 1995 152.4 2001 177.1

1990 130.7 1996 156.9 2002 179.9

1991 136.2 1997 160.5 2003 184.0

1992 140.3 1998 163.0 2004 188.9

1993 144.5 1999 166.6 2005 195.3

2006 201.8

Compute the inflation rate for each year 1989-2006 and determine which were years of inflation. I which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

2 Answers

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  • 9 years ago
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    Inflation cannot be computed simply by subtracting one year's CPI from the next year's CPI. These numbers are based on a base year of 100, and you are asked for the change from one year to the next, in this case none of which are the base year.

    What you have to do for each year: take the CPI, divide by the previous year's CPI, and then take that number times 100 (for percentage), then subtract 100 from that number (so that it reflects only growth in CPI). This will give you the percentage growth in CPI for that year, which is the measure of inflation. If it is positive (and all of these are, by the way), then it would be inflation; if it is negative, it would be deflation (none are). Hyperinflation would be a very large number for inflation. I'm not sure what the actual definition is for one year, but if you saw a CPI jump very high from one year to the next, such as doubling or more, that would be hyperinflation (none here, by the way).

    For example, from 1988 to 1989: take ((124.0/118.3)x100)-100, you get 4.82. So inflation for 1989 would be 4.82%. To finish answering the question, you would need to do these calculations for each year.

  • Anonymous
    9 years ago

    The inflation rates are

    5.7,6.7,5.7,4.1,4.2,3.7,4.2,4.5,3.6,2.5,3.6,5.6,4.9,2.8,4.1,4.9,6.4,6.5.

    There is no hyperinflation,or deflation, GOD BLess.

    But I doubted that these data are real. because we had the deflation right now announced by the FED last week. From your data, there are rates above the target rate of 2%, but it is not regarded as a Zimbabwe's hyperinflation. It is just a normal inflation.

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