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Does lower inflation mean lower prices?

Separate the pace of change from the price level. With a 4% rise followed by 2%, a fictional index of 100 reaches 106.08.

These are fictional examples. Change the numbers to explore.

Use up to four decimal places. Values range from 0 to 1 billion; rates from -1,000% to 1,000%. The price example needs a positive starting value and rates above -100%, up to 1,000%. Results round to four decimal places.

Reading your example

Index after year one
104 index
Index after year two
106.08 index
Total change from the start
+6.08 %

The second-year change is +2%, -2 percentage points different from year one. The price level rises in year two. The fictional index moves 100 → 104 → 106.08.

Compare fictional values · bars start at zero
Start100
After year one104
After year two106.08

How the comparison works

Multiply the starting index by (1 + first-year change ÷ 100). Apply the second-year change to that result. Do not simply add the two annual rates.

  • A lower positive inflation rate means prices rise more slowly. It does not mean the price level falls.
  • This fictional index illustrates rates and levels. It is not an actual CPI series or the price of an individual purchase.
  • The example assumes comparable changes in two consecutive years. It does not model index reweighting or changes of base.

Official explanation checked

Bank of England: what is inflation? ↗

Concept source checked · Our examples and explanations are editorial.

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