CFA Level I · CFA Level I Exam · Understanding Business Cycles
A consumer price index basket cost 400 in the base year. The current cost of the same fixed basket is 436, and a year ago it cost 418. The inflation rate over the past year is closest to:
Inflation over the past year is about 4.3%. The index rose from 104.5 to 109.0, and 109.0 divided by 104.5 minus one is 4.31%. The 9.0% figure measures cumulative change since the base year, not the latest year.
- A4.3%Correct
- B9.0%
- C10.0%
Explanation
Index now = 436/400 × 100 = 109.0. Index a year ago = 418/400 × 100 = 104.5. Inflation = 109.0/104.5 − 1 = 4.31%. The 9.0% figure is the cumulative change since the base year, which is the wrong comparison period.
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