*Inflation refers to an increase in the price of goods and services over time.*

## The Formula

As inflation grows exponentially, the compound interest formula can be used.

Where:

price after time,

original price

time in years

where is the inflation rate

### Example 1

The cost of a phone is $650 and the average inflation rate is 4% p.a.

**a) What is the price of the phone after one year?**

Find the value of .

As this is the first year, we can simply multiply the cost by the growth rate.

Price

Price

The price of the phone after one year is $676.

**b) What will the phone cost after five years (write your answer to the nearest dollar)?**

Use the formula.

After five years the phone will cost $791.

#### See also

Compound Interest

Simple Interest

Effective Interest Rate

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