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[rachelalyce01]

Hey,

I've already asked about finding the inflation rate... which was very beneficial because it helped me track down the statistics to CPI.

Now I've just got another silly question - to find the annual inflation rate, do I just find the quarterly rates and then add them all together?

For example, for 1993, the quarterly percentage change in CPI is:
March 0.9
June 1.8
September 2.2
December 1.9

So do I just add them all together to give me an annual inflation rate of 6.8%?

I'm doing an Assessment and my teacher looked at the inflation rates I had listed (and I talked about 2.2% be the highest for the year), and he said to find the annual rate, and if I couldn't find it to "times it by 4" or something stupid. He's lenient so I could have gotten away with that. However, I'm just checking how to properly find the annual rate, so I can do it in the HSC.

Thanks in Advanced.

 

[karnage]

Add it up and average it out.

So 0.9 + 1.8 + 2.2 + 1.9 divide by 4 = whatever.

Edit: thats the % change, i think the actual CPI figures would be different.

 

[rachelalyce01]

Are you sure? Because that would make my inflation rate too low...

I didnt have a problem with the rates I was getting until I did the 2002 inflation rate...

I used the equation

Inflation Rate (%) = CPI (current year) - CPI (previous year) X 100​

CPI (previous year) 1

And so I got the following rates for the different quarters...
​

March 2.9
June 2.8
September 3.2
December 3.0

and so I added them together and it gave me 11.9%, and I thought "thats way too high, no way we had inflation of 11.9% in 2002" and so I tried you idea of averaging them by dividing by 4 and I got 2.975%

Which seemed weird because in the text book it says we had inflationary pressures in 2002...

.. Maybe its referring to the September quarter 3.2%?

I have no idea.

I'm sorry...

​

Edit: the CPI (previous year) and 1 is suppose to be under the other writing in the equation.

 

[karnage]

I suppose 2.975% could be considered as inflationary pressure as its on the upper value of the 2-3% target range of inflation.

 

[gnrlies]

Just a question, why is it that you want to convert quarterly inflation data into yearly data? This is a complete waste of time.

The percentage change numbers that you have listed refer to the percentage change in the CPI from the corresponding quarter in the previous year.

For Example:

CPI March Qtr, Year 1 = 100
CPI March Qtr, Year 2 = 110

CPI Inflation % March Qtr, Year 2 = (110-100) / 100 = 10%

So when you give those 4 numbers for 1993, this is an annual inflation rate for that respective quarter.

Averaging it out will smooth the data, so in some senses this is helpful but other than looking for historical trends you wouldn't do this. For example if you wanted to say what the inflation rate is in 2008, it is sufficient to say 4.2% as represented in the march quarter as this takes into account the last four quarters.

You certainly dont add the inflation data because this is a completely incorrect proceedure. Karnage is correct in suggesting that if you want a annualised rate you would average it out, but I still dont see why you would want to do this. If anything if you want a statistic for 1993 you would say in 1993 inflation got as high as 2.2% or as low as 0.9% (depending on the point you want to make).

As for 2002 it is best to contextualise the data. Relative to prior years 2002 had higher than typical inflation (excluding the GST which had little impack on underlying inflation). Also you will note that it was the start of a slightly higher period of inflation in the march quarter of 2003.

Another thing to mention as well - usually when looking at inflation, the CPI is only a headline measure. The RBA will look at underyling measures and will often state in their statement on monetary policy where inflation is in terms of underlying measures.