Final answer:
The calculated change in price index from 137 to 110 represents a deflation rate of 19.71%, implying that there is a decrease in price levels rather than an inflation.
Step-by-step explanation:
To compute the inflation rate when the price index decreases from 137 to 110, we use the percentage-change calculation. The formula for calculating the inflation rate is: inflation rate = 100 x (New Index - Old Index) / Old Index. Applying the given numbers, we get the inflation rate = 100 x (110 - 137) / 137 = 100 x (-27) / 137 = -19.71%.
However, a negative inflation rate indicates deflation rather than inflation, as the price level is decreasing. In most cases, when people refer to the inflation rate, they are referring to the rate at which prices are increasing. Since this question implies a reduction in the price index, it's important to clarify the concept with the enquirer if the context suggests they are expecting an inflation rate rather than a deflation rate.