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The inflation rate formula is calculated as:
(CPI in current year – CPI in previous year) / CPI in previous year * 100
The Consumer Price Index (CPI) is a measure of the change in price of a basket of goods and services consumed by households over time. It is commonly used as a measure of inflation. The inflation rate formula calculates the percentage change in the CPI from one year to the next. To do this, the formula subtracts the CPI in the previous year from the CPI in the current year and then divides the result by the CPI in the previous year. The final result is then multiplied by 100 to express the change as a percentage. This gives us the inflation rate, which is a useful indicator of the changes in the cost of living over time and the purchasing power of money.
The effects of inflation are often not directly felt but are played out over a long time, especially long-term investments are vulnerable to inflation.
At Horizon65, we created a mobile app that enabled you to check the effect of inflation on your savings.