Consider the following Consumer Price Index (CPI) data:

\begin{tabular}{|c|c|c|c|}
\hline Year & CPI & Year & CPI \\
\hline 1999 & 166.6 & 2008 & 215.3 \\
\hline 2000 & 172.2 & 2009 & 214.5 \\
\hline 2001 & 177.1 & 2010 & 218.1 \\
\hline 2002 & 179.9 & 2011 & 224.9 \\
\hline 2003 & 184.0 & 2012 & 229.6 \\
\hline 2004 & 188.9 & 2013 & 233.0 \\
\hline 2005 & 195.3 & 2014 & 236.7 \\
\hline 2006 & 201.6 & 2015 & 237.0 \\
\hline 2007 & 207.3 & 2016 & 240.0 \\
\hline
\end{tabular}

(a) What was the overall increase in prices due to inflation as a percentage from 2000 to 2013? [tex]$\square$[/tex] [tex]$\%$[/tex] (round to 1 decimal place)

(b) What is the annual inflation rate, assuming annual compounding, as a percentage? [tex]$\square$[/tex] \% (round to 1 decimal place)



Answer :

To determine the overall increase in prices due to inflation from 2000 to 2013 and the annual inflation rate assuming annual compounding, we can follow these steps:

### Part (a): Overall Increase in Prices Due to Inflation

1. Identify the CPI values for the starting and ending years:
- Start Year (2000): [tex]\( \text{CPI}_{2000} = 172.2 \)[/tex]
- End Year (2013): [tex]\( \text{CPI}_{2013} = 233.0 \)[/tex]

2. Calculate the overall increase in CPI from 2000 to 2013:
[tex]\[ \text{Overall Increase} = \frac{\text{CPI}_{2013} - \text{CPI}_{2000}}{\text{CPI}_{2000}} \times 100 \][/tex]

3. Substitute the values into the formula and compute:
[tex]\[ \text{Overall Increase} = \frac{233.0 - 172.2}{172.2} \times 100 \][/tex]
[tex]\[ \text{Overall Increase} = \frac{60.8}{172.2} \times 100 \][/tex]

4. Simplify and round to one decimal place:
[tex]\[ \text{Overall Increase} \approx 35.3\% \][/tex]

Therefore, the overall increase in prices due to inflation from 2000 to 2013 is 35.3%.

### Part (b): Annual Inflation Rate Assuming Annual Compounding

1. Calculate the number of years between 2000 and 2013:
[tex]\[ \text{Number of Years} = 2013 - 2000 = 13 \][/tex]

2. Use the formula for the annual inflation rate with annual compounding, which is derived from the compounded interest formula:
[tex]\[ \left( \frac{\text{CPI}_{2013}}{\text{CPI}_{2000}} \right)^{\frac{1}{\text{Number of Years}}} - 1 \][/tex]

3. Substitute the values into the formula and compute:
[tex]\[ \text{Annual Inflation Rate} = \left( \frac{233.0}{172.2} \right)^{\frac{1}{13}} - 1 \][/tex]

4. Convert the result to a percentage and round to one decimal place:
[tex]\[ \text{Annual Inflation Rate} \approx 2.4\% \][/tex]

Therefore, the annual inflation rate, assuming annual compounding, from 2000 to 2013 is 2.4%.