# How to calculate inflation

How to calculate inflation

In writing include inflation rate, calculation method of inflation rate and classification of inflation rate  Inflation rate, economic vocabulary, refers to the rate of increase of the general price level in a certain period (usually a year). How to calculate inflation.

#### Inflation rate

Reflect the degree of inflation. Next, it is usually expressed the increase in the price index and the decrease in the purchasing power of the currency.

Inflation (Inflation), also known as the rate of change of prices. Next, it is the ratio of the excess currency to the actual amount of currency needed to reflect the degree of inflation and currency depreciation.

In economics, the inflation rate: the rate of increase in the average level of prices (based on inflation). Taking the analogy of a balloon, if its size is the price level, the inflation rate is the degree of balloon inflation. In other words, inflation is the decrease in the purchasing power of money.

In practice, inflation is generally not directly or impossible to calculate. However, the growth rate of the price index express inflation. Since consumer prices reflect the final price formed by the various links in the circulation of commodities, it most comprehensively reflects the demand for currency in commodity circulation. Therefore, the consumer price index is the price index that can fully and comprehensively reflect the inflation rate. Basically, all countries in the world use the consumer price index (called the consumer price index in my country), or CPI, to reflect the degree of inflation.

#### Calculation method

The inflation rate is usually expressed indirectly by the price index growth rate. If the price index growth rate is greater than zero, it indicates that there is inflation; if the price index growth rate is less than zero, it indicates that there is deflation. When determining the inflation rate, it is necessary to choose a price index to represent changes in the general price level. The main available price indexes are: commodity wholesale price index, commodity retail price index, consumer price index and GDP price index. Most countries use the consumer price index as a measure of inflation, and formulate monetary policies and related macroeconomic policies based on changes in the consumer price index to achieve the macroeconomic goal of price stability.

The inflation rate is calculated by the growth rate of the price index. The price index can be converted into the price index using the consumer price index (CPI), producer price index (PPI), and GNP respectively. Next, the first one is often used, and its formula is as follows:

CPI=a1(P1t/P10)+a2(P2t/P20)+……+an(Pnt/Pn0) (Note: the numbers and t and n in the formula are all subscripts, P is the price of representative consumer goods, a Is weight)

Calculation method: ①Calculated by price index changes: Inflation rate (price increase rate) = {(Current price level-Base price level)/Base price level}

(The price increase rate is from low to high, based on the base period price level)

Note that the inflation rate is not a price index, that is, it is not the rate of increase in price, but the rate of increase in price index.

②Use basic concepts to derive and calculate: Inflation rate (price increase rate) = (Amount of currency issued-Amount of currency actually needed in circulation) / Amount of currency actually needed in circulation × 100%

#### Classification

1.Distinguish according to the rate of price increase

Crawling inflation (the annual price increase rate is within 1%~3%)

Severe inflation (the annual price increase rate is between 6% and 9%)

Rapid inflation (the annual price increase rate is 10%~50%)

Hyperinflation (the annual price increase rate is more than 50%)

1. Distinguish according to people’s expectations

Unanticipated inflation

Expected inflation

1. Distinguish according to the difference in price impact

Balanced inflation (the price of each commodity rises in the same proportion)

Unbalanced inflation (the rate of increase in various commodity prices is not exactly the same)

1. Distinguish according to different manifestations

Open inflation

Hidden inflation

Suppressive inflation

1. Distinguish according to different causes

Demand-driven inflation: that is, the root cause of inflation is the excessive growth of aggregate demand. Next, it exceeds the total supply available at the current price, leading to too much money to pursue too few commodities, which causes an overall increase in prices.

Cost drives inflation: that is, the root of inflation lies in changes in the total supply. It causes the price level to rise generally.

Structural inflation: that is, rising prices are due to excessive demand for products in certain sectors. The total economic demand is not excessive.

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