Compute inflation for each year and determine which years were inflation. Which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?
YEAR CPI YEAR CPI YEAR CPI
1992 140.3 1999 166.6 2006 201.6
1993 144.5 2000 172.2 2007 207.3
1994 148.2 2001 177.1 2008 215.3
1995 152.4 2002 179.9 2009 214.5
1996 156.9 2003 184.0 2010 218.1
1997 160.5 2004 188.9 2011 224.9
1998 163.0 2005 195.3 2012 229.6
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To answer this question, we need to know two things. We need to know the definitions for inflation, deflation, and disinflation and we need to know the formula for calculating the rate of inflation between two years.
Inflation occurs when the CPI goes up from one year to the next. This means that the average price of goods and services has risen. Deflation occurs when the CPI goes down from one year to the next. In other words, average prices fall. Disinflation is when there is still inflation happening, but the inflation rate is lower than it was the previous year. In other words, prices are still rising, but they are not rising as fast as they had been.
In order to determine which years have inflation, deflation, and disinflation, we have to calculate the rate of inflation (percent change in the CPI) from each year to the next year. The formula for that is:
Rate of inflation =((CPI Year 2 – CPI Year 1)/CPI Year 1)*100
For example, the CPI in 1992 was 140.3 and the CPI in 1993 was 144.5. Let us plug those numbers into the equation:
Rate of inflation = ((144.5 – 140.3)/140.3)*100
So, the rate of inflation between these two years was 2.99%. There was inflation between 1992 and 1993.
In order to answer your question, you will need to find the inflation rate for each of the years in your question. It is easy to do this using a spreadsheet program like Microsoft Excel. Whenever the percent change is negative, there is deflation. If the percent change is positive, there might be inflation or there might be disinflation. Disinflation would occur if the percent change in the CPI between two years was positive, but lower than the previous year. For example, the percent change in the CPI between 1993 and 1994 was 2.56. That is lower than 2.99. This means that there was disinflation between 1993 and 1994.
So, if you can find the percent change in CPI between each of the pairs of years, and then you can determine whether the economy experienced inflation, deflation, or disinflation in a given year.
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