Average annual inflation rates from base year Steps:

• Base CPI=100 before year 1; year 1 CPI=100 shows 0% cumulative change over 1 year.
• Year 2 CPI=101.1 gives 1.1% cumulative over 2 years: 1.1%/2=0.55%.
• Year 3 CPI=101.8 gives 1.8% cumulative over 3 years: 1.8%/3=0.6%.
• Year 4 CPI=102.1 gives 2.1% cumulative over 4 years: 2.1%/4=0.525%. Why C is correct:
• Average annual rate uses cumulative CPI change from base divided by years elapsed; year 1 shows 0% as unchanged from base. Why the others are wrong:
• A: CPI peaks at 102.1 in year 4, exceeding 101.8 in year 3.
• B: Year 4 average rate is 0.525%, not 2.1% (cumulative total, not annual).
• D: Highest average rate is 0.6% in year 3, exceeding 0.55% in year 2. Final answer: C