Suppose the CPI today is 120 and five years ago it was 80.Then in today's prices something that cost $1 five years ago now costs $1.50.

Question

Quizplus · Accepted Answer

We can use the ratio of the CPIs to calculate the inflation rate over the five-year period:
Inflation rate = ((Current CPI - Previous CPI)/Previous CPI) x 100%
Inflation rate = ((120 - 80)/80) x 100% = 50%
This means that prices have increased by 50% over the five-year period. Therefore, something that cost $1 five years ago would now cost 1 + (0.5 x 1) = $1.50 in today's prices, as stated in the question.

Suppose the CPI Today Is 120 and Five Years Ago