Why the inflation rate is calculated?

Answer 1

Inflation is measured by calculating the percentage rate of change of price index,

which is

calledthe inflation rate. The rate of inflation is usually expressed in annualised term,

though the measurment periods are usually different from one year. Inflation

rate= p - P /P *100

i.e, p minus P divided by P into100.

Where, p= current average price level, P= price level a year ago.

Answer 2

The inflation rate is calculated to know the rate at which the prices of essential commodities are increasing in the country's economy.

A very high level of inflation signifies a poor level of financial management by the government.

for example: if the rate of toothpaste was $2 last year and is now $3 now then we can say the inflation rate for toothpaste is 50% because the price of toothpaste has increased by 50% in the last one year.

This is a very crude example. Usually the inflation rate is the average of the increase in price of a number of essential commodities.