Next Year Interest Rates Are Expected to Be 8% and the Price

Multiple Choice

Next year interest rates are expected to be 8% and the price of a barrel of oil is expected to $110. The corresponding figures for the current year are 6% and $100. Assuming that long term interest rates in a stable economic environment are 4%, which of the following statements best expresses expected inflation levels for next year?

A) Inflation is expected to rise 2% next year.
B) Inflation is expected to rise 4% next year.
C) Inflation is expected to rise 10% next year.
D) Inflation is expected to rise 25% next year.
E) Inflation is expected to rise 100% next year.