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Monday, May 16, 2011

What is Inflation Rate?

Inflation rate is the measure of the inflation which is nothing but the rate of increase of the price index like CPI (Consumer price index) or WPI (wholesale price index).
In simple words, inflation rate shows by how much percent price of goods and services have risen from their past value.
It has inverse relationship with the purchasing power, higher the inflation lesser is the purchasing power.
Inflation rate when subtracted from the interest rate we get the real interest rate i.e. the rate which is devoid of the inflation.
Real interest rate is the actual measure of the return, a return of 10 % with inflation rate of 12 % is actually a return of -2% in real terms.
Inflation rate calculation-
Inflation rate= (P1-P0)*100/P0
P1= Present inflation rate
P0=Past inflation rate

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