How to Calculate the Average Annual Inflation Rate

The inflation rate measures the amount that the price of a good or goods increases over time. The inflation rate can be measured in regards to a specific product, such as gasoline, or the economy as a whole. If you measure the inflation rate over a period of several years, you can figure the average annual rate. Knowing the average annual rate can be beneficial so that you can compare the return of other investments to the inflation rate.

Step 1

Divide the price at the end of the specified period from the price at the beginning of the period. For example, if you wanted to calculate the average inflation for gasoline over a five-year period and the price jumped from $1.30 at the start to $2.50 at the end, you would divide $2.50 by $1.30 to get 1.923.

Step 2

Divide 1 by the number of years the inflation took place over. In this example, you would divide 1 by 5 to get 0.2.

Step 3

Raise the Step 1 result to the power of Step 2 . In this example, you would raise 1.923 to the 0.2 power to get 1.139723049.

Step 4

Subtract 1 from the Step 3 result to find the average annual inflation rate expressed as a decimal. In this example, you would subtract 1 from 1.139723049 to get 0.139723049.

Step 5

Multiply the average annual inflation rate by 100 to convert to a percentage. In this example, you would multiply 0.139723049 by 100 to find the average inflation rate to be about 13.97 percent per year.