When we have a certain index value for current year & Previous year, we can find the inflation.
Find inflation for:
a) 10th june 2015
b) 2nd week of september 2015
The first mistake student make while calculating inflation is, they mix concept of index value & inflation.
Step 1) Inflation is always measured point-to-point.
-For 10th june 2015(Current reference), we should know what was index value at 10th june 2014 (Previous reference)
-For 2nd week sept 2015(Current reference), we should know what was index value of 2nd week sept 2014 (Previous reference)
-For 2015 (Current reference), index value of 2014 (Previous reference)
Wait a minute! 1st question is about index value of 1 day, 2nd is of one week, 3rd is about whole dammn year!
Govt statistical organisation (CSO) do not calculate index value every day. As it is a lengthy process with so many schedules involved. For whole year, we will take average of 12 months index number. If an index number is available any specific week, we can take it OR assume that month index number as our previous reference for specific week. Same for one day index value.
Step 2) We have 2 index number, current and previous year.
Inflation = current index value – Previous index value /Previous index value * 100
Say this year index is 109. Last year index value was 106. Inflation will be 109-106/106*100 = 2.83%
Note: Don’t get confused here, as we have used our previous year index value 106, and not base year value 100, which will show higher inflation of 9% (That is wrong!!)