In January of 1997,the U.S.Consumer Price Index (CPI)stood at 159.1.By January of 2017,the level had risen to 242.84.What was the average annual rate of inflation over this time period as measured by the CPI?
A)2.14%
B)3.35%
C)2.35%
D)2.60%

Question

Quizplus · Accepted Answer

The average annual rate of inflation can be calculated using the formula for compound annual growth rate (CAGR), which is: $$CAGR = \left(\frac{FV}{PV}\right)^{\frac{1}{n}} - 1$$ where FV is the final value (242.84), PV is the initial value (159.1), and n is the number of years (2017-1997 = 20 years). Plugging in the values: $$CAGR = \left(\frac{242.84}{159.1}\right)^{\frac{1}{20}} - 1 \approx 0.0214$$ or 2.14% when expressed as a percentage.