IAI Actuarial Core Principles · Business Economics · Impact of the macroeconomic environment on business
The consumer price index rises from 125 to 135. What is the inflation rate, to the nearest 0.1%?
Inflation is 8.0%. It is the change in the index, 10 points, divided by the original base of 125. Dividing by the later value of 135 would wrongly give 7.4%, and quoting the 10-point change as a percentage would also be wrong.
- A7.4%
- B8.0%Correct
- C10.0%
- D12.5%
- 7.0%
Explanation
Inflation = (135 − 125) / 125 = 10/125 = 0.08, which is 8.0%. Dividing by the new index (10/135 = 7.4%) uses the wrong base. Using the point change of 10 as a percentage gives 10.0%.
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