The Bureau of Labor Statistics has a website (www.bls.gov) that contains a Consu

Question

The Bureau of Labor Statistics has a website (www.bls.gov) that contains a Consumer Price Index inflation calculator that uses the average CPI to adjust the purchasing power of money over different periods of time. The CPI index value has been calculated every year since 1913. The calculator indicated that $1.6 million in 1913 would have the same purchasing power as $23,930,909 in 2016. What was the average inflation rate over this 103-year time period?

The average inflation rate was  % per year.

Explanation / Answer

Purchasing Power in 1913 = $1,600,000

Purchasing Power in 2016= $23,930,909

Number of year = 103 year

Average Inflation rate = [($23,930,909 / $1,600,000) ^ (1 / 103)] - 1

= [14.9568 ^ (1 / 103)] - 1

= 1.0266 - 1

= 2.66%

Average Inflation rate is 2.66%.

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