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Sagot :
The exact inflation rate is estimated as (110 - 107)/107 = 0.028 = 2.8% when the price index rises from 107 to 110.
The benefit of employing price indices over the costs of the market basket is that indexing makes it simpler to estimate inflation rates visually. Looking at two annual figures for a price index, such as 107 and 110, reveals that the rate of inflation rate between the two years is about, but not quite, 3%.
A simple subtraction is not a terrible shortcut for figuring out the inflation rate when the base year is very close to 100, but it will not work when accuracy is required down to tenths of a percent.
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