If the Consumer Price Index one year ago was 142.5 and today it's 148.4, what has been the rate of inflation over the last 12 months?

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Prepare for the QFA Investments Exam 1. Study with flashcards and multiple-choice questions with detailed explanations. Enhance your understanding and succeed on your exam!

Multiple Choice

If the Consumer Price Index one year ago was 142.5 and today it's 148.4, what has been the rate of inflation over the last 12 months?

Explanation:
Inflation over the past year is found by the percent change in the CPI from one year to the next. Subtract the old CPI from the current CPI to get the increase, then divide by the old CPI and express as a percent. Here, the increase is 148.4 − 142.5 = 5.9. Divide by the year-ago CPI: 5.9 / 142.5 ≈ 0.0414. Convert to a percentage: 0.0414 × 100 ≈ 4.14%. So, the rate of inflation over the last 12 months is about 4.14%.

Inflation over the past year is found by the percent change in the CPI from one year to the next. Subtract the old CPI from the current CPI to get the increase, then divide by the old CPI and express as a percent.

Here, the increase is 148.4 − 142.5 = 5.9. Divide by the year-ago CPI: 5.9 / 142.5 ≈ 0.0414. Convert to a percentage: 0.0414 × 100 ≈ 4.14%.

So, the rate of inflation over the last 12 months is about 4.14%.

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