Activity 1 ESTIMATING INFLATION
PART 1: PRICE PROJECTIONS
Last year you purchased a pair of jeans for $75.00 at your favorite store. This year that same pair of jeans is priced at $89.00.
1. What is the inflation rate for these jeans?
This year's price - Last year's price Price increase + Last year's price = Inflation rate
$
89.00
75.00
18.67
$
$
18.67
%
2. If that inflation rate remains consistent, how much will the jeans cost in the future? Use a calculator to fill in the chart.
JEANS PRICE SERIES - CONSISTENT INFLATION RATE
Last year
Fuhre year 1 Future year 2 Future year 3 Future year 4
$75.00
$89.00 $ 105.62
$
$ 0.64.00
This year
3. Which years reflect actual prices?
Hypothetical prices?
4. Inflation rates are rarely consistent from year to year. Estimate the prices if the inflation rate is 5% higher in future year 2
than it was this year, then another 3.5% higher in future year 3, and then falls by 2% in future year 4.
JEANS PRICE SERIES - CHANGING INFLATION RATE
Last year This year Future year 1 Future year 2 (inflation -5%) Future year 3 inflation +3.55) Future year 4 inflation -20
$75.00 $89.00 $
$
S