Inflation Rate Calculation with 2004 as the Base Year

How to calculate the inflation rate for 2005 with 2004 as the base year?

What is the formula to determine the inflation rate for 2005 using 2004 as the base year?

Answer:

To calculate the inflation rate for 2005 with 2004 as the base year, subtract the CPI of 2004 from the CPI of 2005, divide by the CPI of 2004, and multiply the result by 100.

Explanation: The inflation rate is calculated based on the yearly changes in the Consumer Price Index (CPI). To compute the inflation rate for 2005 with 2004 as the base year, we subtract the CPI of 2004 from the CPI of 2005 and then divide the result by the CPI of 2004. This subtraction gives us the change in CPI.

When we divide this by the CPI of the base year (2004), we get the rate of change in CPI which represents inflation. Finally, multiply by 100 to convert it into a percentage. So the formula we use is: (CPI in 2005 - CPI in 2004) / CPI in 2004 x 100. So, the correct answer is 'a'.

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