To fully understand inflation, it can be helpful to know how to calculate the inflation rate. This involves using a simple inflation rate formula that allows you to see the percentage increase in cost between the specified years. When you understand how to calculate the inflation rate, it will be easier to maintain your budget.
The Basic inflation rate formula is calculated with A as a starting cost and B as the ending cost.
Subtract A from B to see how much the price of that good has changed.
Divide the result by A, which will leave you with a decimal figure.
Convert the decimal into a percentage by multiplying by 100.
This may sound a little complicated, so we’ll put it into context with an example. We’ll take the price of a white pan bread. According to the Bureau of Labor Statistics the average price was $1.41 in May 2020. In May 2022, the average price was $1.61. We can now apply these figures to the inflation rate formula.
$1.61-$1.41 = $0.20
$0.20 /$1.41 = 0.142
142x 100 = 14.2% inflation.