Sunday, June 12, 2022

Is inflation 9% higher than last year?

See The U.S. and Europe Have Different Inflation Problems. Excerpt:

"In the first four months of the year, inflation rose at a 12% annualized rate in Europe compared with 9% in the U.S."

I think the article should have said that prices rose 9% in the U.S. Inflation and prices are not the same thing. 

Inflation is a sustained rise in the general price level. The inflation rate tells us how much higher prices were this year than last year.

So if you say inflation was 9% higher than last year, you are saying that the inflation rate is 9% higher.

So if inflation was 5% one year and then 9% higher the next year, it would be 5.45% in the second year since 5.45 is 9% higher than 5 (1.09*5 = 5.45). That is much different.

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