Question

The current inflation rate is 1.1% per year. It is forecasted to have an increment of 0.75% per decade. For the case of analysis, assume that this increase is added at the end of each decade. What is the expected inflation rate for the next 10 years?

Answer 1

The expected inflation rate for the next 10 years stays at 1.1% per year, with an increase applied at the end of that period, leading to an inflation rate of 1.85% in the subsequent years.

Step-by-step explanation:

The current inflation rate is 1.1% per year and it is forecasted to increase by 0.75% per decade. To calculate the expected inflation rate for the next 10 years, one must acknowledge that the incremental increase is added at the end of the first decade.

Since the increase happens at the end of the decade, for the next 10 years, the inflation rate would consistently be at the current rate of 1.1% per year. At the end of the 10-year period, the inflation rate will have the forecasted increment of 0.75% added, resulting in an inflation rate of 1.85% for the years following. Therefore, the expected inflation rate for the next 10 years remains at 1.1% per year.