Masako buys a house in 1999.She obtains a mortgage that carries an annual interest rate of 12 per cent, and makes payments of $880 per month.The CPI in 1999 is 100, in 2000 it is 110, and in 2001 it is 120.What is the inflation rate in 2001?

Question

Quizplus · Accepted Answer

The inflation rate for a given year is calculated as the percentage increase in the CPI from the previous year. For 2001, the CPI increased from 110 to 120. The inflation rate is therefore $\frac{120 - 110}{110} \times 100\% = \frac{10}{110} \times 100\% = 9.09\%$, which rounds to nine per cent.

Masako Buys a House in 1999