Price of consumer goods and services has been on the rise in the recent past, reflecting an increase in Consumer Price Index (CPI). On the other hand inflation rates appear to be on a decline, an indication that the economy is strengthening.

From the table above, the CPI is increasing on a monthly basis while inflation rates are decreasing.

If you are not very conversant with the economics behind inflation rates, you will find the above scenario quite puzzling. The price of consumer goods appears to be on the rise yet inflation rates are on a decline, translating in an indication that the economy is strengthening. Well, if you find this confusing, let me unravel it for you.

Inflation rate is the percentage rate of change in price level over time, usually one year.

To calculate inflation rate, get the percentage difference between the current CPI and the CPI a year ago. If the difference is not big, the percentage change will be small and subsequently translating in a lower inflation rate.

Of late, the percentage change between CPI’s has been getting smaller and smaller, translating in  a reduction in overall inflation rate.