When inflation changes each year, is the average rate enough?
Successive price changes compound. A simple arithmetic average of annual rates generally does not reproduce the cumulative change over the whole period.
Inflation calculator →Each year starts from a new price level
After the first year’s increase, the next percentage applies to the updated price. Multiply the individual growth factors when annual observations are available. If an appropriate starting and ending price index are known, their ratio gives the cumulative factor directly. The fixed-rate inflation tool is designed for a constant scenario, not for importing an entire historical sequence.
Compare two paths over two years
Begin with a price of 100. A 10% rise in year one takes it to 110; no change in year two leaves it at 110. The arithmetic average of the two rates is 5%, but applying 5% in both years gives 100 × 1.05² = 110.25. The constant annual rate that exactly reproduces 110 is √1.10 − 1, approximately 4.8809%. The small difference illustrates the distinction between averaging percentages and matching compounded growth.
Choose the appropriate historical series
Price indexes differ by geography, coverage and publication frequency. A single month’s year-over-year rate is not necessarily the annual-average change for a calendar year. The figures here explain the method and are not historical observations for any country. A personal spending basket can also differ from a broad consumer index, so label the source and scope when using real data.
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