Q&A for How to Calculate Inflation

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What causes inflation in the first place?

Alex Kwan
Certified Public Accountant
Alex Kwan is a Certified Public Accountant (CPA) and the CEO of Flex Tax and Consulting Group in the San Francisco Bay Area. He has also served as a Vice President for one of the top five Private Equity Firms. With over a decade of experience practicing public accounting, he specializes in client-centered accounting and consulting, R&D tax services, and the small business sector.

Alex Kwan

Certified Public Accountant

Expert Answer

In general, people expect a raise in salaries every year. In order to achieve that, companies need to increase their overhead costs—like their production costs or their selling price. There are also increases in things like transportation costs and raw materials.

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Question

How do I calculate inflation given the nominal GDP and the real GDP plus the deflator?

Community Answer

Get the difference of the RGDP and NGDP. Divide the difference by the NGDP. The quotient of the two is the inflation rate.

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Question

If the inflation rate is 1500%, does that mean that a $5 item will cost 1500 times the base price?

Orangejews

Community Answer

1500% is 15 times the original, so 1500% of $5 is $75. But since inflation is a rate of growth, it means the $5 item would inflate to $5 + $75 or $80.

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Question

Is inflation a disease to the economy?

Donagan

Top Answerer

It is, but deflation is even worse. Because it's very hard to keep an economy on the cusp between inflation and deflation, most central banks try to maintain a small amount of inflation in order to keep the economy out of deflation.

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