Q.

Can some one xplain to me and others, ,the real meaning of Inflation and how it it is calcualted?

Asked by Dr. Jasraj S. Jasraj,
21 Aug '07 11:17 am

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Answers (3)

1.

A simple commonly used definition of the word inflation is simply "an increase in the price you pay or a decline in the purchasing power of money".

In other words, Price Inflation is when prices get higher or it takes more money to buy the same item.

The Formula for Calculating Inflation

The formula for calculating the Inflation Rate using the Consumer Price Index is relatively simple. Every month the Bureau of Labor Statistics (BLS) surveys prices and generates the current Consumer Price Index (CPI). Let us assume for the sake of simplicity that the index consists of one item and that one item cost $1.00 in 1984. The BLS published the index in 1984 at 100. If today that same item costs $1.85 the index would stand at 185.0

By looking at the above example, common sense would tell us that the index increased (it went from 100 to 185). The question is how much has it increased? To calculate the change we would take the second number (185) and subtract the first number ( ...more

Answered by srini, 21 Aug '07 11:21 am
In other words, Price Inflation is when prices get higher or it takes more money to buy the same item.

The Formula for Calculating Inflation

The formula for calculating the Inflation Rate using the Consumer Price Index is relatively simple. Every month the Bureau of Labor Statistics (BLS) surveys prices and generates the current Consumer Price Index (CPI). Let us assume for the sake of simplicity that the index consists of one item and that one item cost $1.00 in 1984. The BLS published the index in 1984 at 100. If today that same item costs $1.85 the index would stand at 185.0

By looking at the above example, common sense would tell us that the index increased (it went from 100 to 185). The question is how much has it increased? To calculate the change we would take the second number (185) and subtract the first number ( ...more

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2.

Inflation is increase in the purchasing power of money. When prices go up, you have to shell out for purchasing the same item. Every month, the Consumer Price Index is notified by Labour Bureau & the practice of indexing started from 1984

Answered by raghavan pvv, 21 Aug '07 11:29 am
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